Argentine debt rises out of distress territory on Milei reforms

Investors are no longer betting Argentina is heading inevitably to default as President Javier Milei wins over bond markets with his plans to remake South America’s second-largest economy.

The extra-yield investors demand to hold Argentine paper over similarly dated US Treasury yields closed below 10 percentage points, a level that traditionally signals distress, according to data from JPMorgan Chase & Co. The spread is at its lowest levels since August 2019, when former president Mauricio Macri was in office.

Fixed-income investors have enthusiastically lent their support to Milei’s ambitious reform agenda in recent months. Prices for some of Argentina’s sovereign notes have soared to their highest levels since they were issued in a September 2020 restructuring, and markets are pricing in even higher odds the country makes good on its its bond payments in January.

Money managers are also optimistic that Milei will continue to make strides in crushing triple-digit inflation and reversing years of endemic budget deficits, while holding on to his popularity. 

The spread over US Treasuries has narrowed some 941 basis points since Milei took over in December, igniting a wave of debt sales by Argentina’s largest companies. Still, some on Wall Street warn the country has a long ways to go before the government can entertain the idea of a return to markets. 

The nation’s bonds have offered investors a return of 73.5 percent this year, the best in the developing world, according to data compiled by Bloomberg.