Only in Argentina: Junk-rated bonds yield less than US treasuries

For all of President Javier Milei’s libertarian reforms, there are still all sorts of byzantine financial rules in place, like restrictions on lending and moving money overseas, that are creating distortions in Argentina’s capital markets.

The most prominent of those distortions right now: The sudden rush by local companies to lock in interest rates on dollar-denominated bonds that are below what US Treasury bonds pay.

Lender Banco Supervielle sold US$20 million of one-year local notes in May at an interest rate of 3.25 percent, below comparable Treasury yields of around four percent. Oil producer YPF SA placed US$122 million in a 2030 note at a 5.5 percent rate in the local market last month. The government raised US$500 million this month through dollar bonds in the local market – one-year notes maturing in 2027 were sold to yield five percent, just above comparable US Treasury yields.

Argentina, which has defaulted multiple times on its sovereign debt, finds itself awash with greenbacks amid a surge in agricultural exports – and lingering capital controls that keep those dollars largely trapped in the country. The abundance of local dollar liquidity has pushed borrowing costs lower onshore, enabling the government to sell debt at lower yields at home, rather than looking abroad, helping to finance debt repayments due later this year.

The low borrowing costs are, of course, an oddity – not a signal investors see Argentine companies are less risky than the US government. Traders scooping up those bonds have to account for currency decline expectations as well as losses tied to inflation, which remains among the highest in the world at 32.4 percent. In global markets, Argentina still faces high borrowing costs, which has kept the government from tapping offshore investors. But it’s a window into just how distorted the economy remains, with capital controls and bank lending restrictions creating pricing distortions. 

“Exchange controls have left captive dollars searching for yield,” said Juan Pedro Mazza, senior institutional sales trader at the brokerage Cohen SA. That has created “an opportunity for companies and the government to borrow locally at cheaper levels.”

Local-law dollar corporate bonds yielded an average of 4.8 percent across all maturities as of May 15, compared with roughly 7.4 percent for similar foreign-law debt, according to secondary-market data compiled by Cohen.

The corporate sales are small when compared to sizes placed in global markets, and short in duration, which signals there’s only so much the local market can absorb. And the same companies continue to pay significantly higher rates on larger and longer-dated foreign-law bonds sold abroad. YPF paid 8.1 percent to tap international investors on a US$550-million bond sale earlier this year. 

Dollar flush

The persistence of low rates signals there is still excess dollar liquidity in the local market, Mazza said. Agricultural exports, energy revenue and a wave of corporate debt sales overseas have all fuelled inflows, while retail dollar deposits have climbed to two-decade highs under Milei. 

The temporary glut of dollar liquidity is unusual for a country that has defaulted on its debt nine times, and has helped support the peso as one of the best-performing currencies during the war in the Middle East.

While the administration has dismantled many of the currency controls inherited from previous governments, key restrictions remain in place. Cross-market rules still limit the ability of individuals and companies to freely trade dollar-denominated bonds – a common mechanism used by investors and firms to move money abroad. International companies are also still unable to buy dollars for savings purposes or repatriate retained dividends from Argentina generated before 2025. 

At the same time, banking regulations introduced after the country’s 2001 financial crisis largely prevent lenders from extending dollar loans to borrowers without hard-currency income, sharply limiting the pool of eligible borrowers.

“Banks are flush with dollar deposits and short on demand for dollar loans,” said Alejandro Butti, chief executive officer of Santander Argentina, at a recent event in Buenos Aires. “Local dollar rates are extremely low compared with international markets, and some pre-export financing lines in Argentina are being priced near the rates at which the US government borrows.”

With roughly US$4.5 billion in foreign-currency bonds maturing in July, local funding has become a cornerstone of Milei’s debt strategy, rather than issuing debt abroad at high single-digit yields.

The government first placed almost US$1 billion in local-law dollar bonds in December to help cover about US$4.5 billion in early 2026 debt payments. Ahead of another large sum due in July, the Treasury has expanded the approach, issuing biweekly short-term dollar notes targeted at retail investors. The securities mature in 2027 and 2028 and pay monthly interest instead of the more typical semiannual coupons.

“As long as we have access to financing at around six percent to repay debt yielding closer to 9.5 percent, that’s what makes sense,” Economy Minister Luis Caputo said in a television interview this month. “When that option is no longer available, that’s when we will eventually turn to the market.”