Speculators seeking to profit from the sell-offs racing through Argentina’s markets were stopped dead in their tracks by a powerful investor willing to take the opposite side of the trade: the US government.
The strong show of support for President Javier Milei from US Treasury Secretary Scott Bessent – first by pledging to use “all options,” and then by announcing a plan to potentially provide a US$20-billion lifeline and buy Argentina’s bonds – quickly halted a rout that was burning through the government’s reserves as it fended off a run on its currency.
Whether the money materialises or not, investors said the prospect alone will likely be enough to put a floor under Argentina’s stocks, bonds and currencies ahead of key national elections late next month. That’s because few, if any, are willing to stand behind a bearish bet that could get blown up by another US signal of support.
“That’s an outsized package and coming from Scott Bessent – who understands markets – it should stabilise here,” said Ray Zucaro, chief investment officer at RVX Asset Management LLC in Miami, who currently has a neutral view on Argentina’s bonds. “It is hard to be short.”
The potential intervention – which traders likened to Bill Clinton’s rescue of Mexico in the mid-1990s – offers a rare break from the Trump administration’s brand of economic nationalism, in this case to help a besieged ideological ally in a country whose financial crises have had little impact on the United States.
Milei, a libertarian economist who ushered in free-market shock therapy aimed at ending the crises that have shadowed the country for decades, had some success in taming runaway inflation. But a political scandal surrounding insiders in his administration and voter anger at some of his spending cuts handed him surprisingly large defeats in recent local elections, raising fears among investors that his reforms could stall if he suffers a setback in the national midterm vote on October 26.
The result was a sharp sell-off that hit everything from dollar bonds to the peso and equities – and left the government burning through foreign-exchange reserves to prevent its currency from breaking its peg to the US dollar. Markets bounced back after Bessent’s announcements on Monday and Wednesday eased worries that the election could plunge Argentina toward another crisis.
“This is likely to limit losses in the event of a bad October,” said Gorky Urquieta, co-head of Neuberger Berman’s emerging markets debt team.
The step has also bolstered confidence that Argentina will avoid an escalating run on the currency and have enough money to cover its upcoming obligations. The Milei administration is scheduled to make more than US$4 billion in debt payments in January.
“The probability of default during Milei’s term decreased significantly,” said Matías Montes, head of strategy at London-based EMFI Securities.
The Trump administration’s potential use of the Treasury’s Exchange Stabilization Fund – a reserve created to promote orderly foreign-exchange markets – sends a strong signal that it is willing to use US power to support Milei, who Bessent characterised as “systemically important US ally.”
By late Wednesday, the promise had driven the peso to a three-day rebound that left it at 1,337.50 pesos per dollar, the highest level in almost a month. Dollar bonds were up across the curve, almost erasing the losses seen after the government’s defeat in the Buenos Aires vote on September 7. The country’s main stock exchange staged a three-day gain that pushed it up over nine percent.
Attention now turns to whether Milei can secure enough political support in October to press ahead with his policies, said Jeff Grills, head of US cross-asset and emerging-markets debt at Aegon Asset Management.
He said the government will likely need to revise its currency targets under the prior deal cut with the International Monetary Fund. But overall, he viewed the US help as positive. “It buys them time,” he said.
by Vinícius Andrade & Nicolle Yapur, Bloomberg
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