Argentina Posts Strong Debt Auction After Local Vote Fueled Rout
A pedestrian walks past the Economy Ministry building in Buenos Aires, Argentina.
Photographer: Tomas Cuesta/BloombergArgentina refinanced almost all of its upcoming local maturities in a debt auction Wednesday, a reprieve for President Javier Milei after his party lost a local election by a landslide Sunday.
Milei’s administration rolled over more than 91% of peso-denominated notes coming due, selling a total of 6.6 trillion pesos ($4.7 billion) in government notes, according to an X post by Finance Secretary Pablo Quirno. However, the Treasury’s most subscribed Lecap notes included annual interest rates above 59%, a sign of how borrowing costs remain elevated as Milei’s government has significantly tightened liquidity in the financial system to contain currency volatility.
Before the auction, yields on local debt had jumped to record highs even ahead of the surprise vote in Buenos Aires province as investors grew increasingly anxious about the viability of Milei’s free-market program, forcing the administration to repeatedly raise banks’ reserve requirements to keep its tight grip on the peso.
“Rates were pretty elevated,” said Ramiro Blazquez, a strategist at StoneX. “This implies that the government continues to prioritize low inflation ahead of the election, at the cost of economic activity.”
This week has been a high-stakes period for Argentina and its slumping peso, the worst performer in all of emerging markets in 2025. Losses mounted on Monday after Milei’s party lost the Buenos Aires provincial vote by a much wider margin than investors expected, raising investors’ concerns that it could suffer a similar defeat in nationwide midterm elections next month.
Rolling over a large chunk of the maturing bonds, including some dollar-linked securities, helps the government prevent a sudden surge of cash into the economy that would have stoked further declines in the peso and threaten the progress that Milei has made in quelling runaway inflation.
Argentina Peso Debt Yields Edge Lower as FX Weakens
Source: Bloomberg
At 1,423.5 pesos per dollar, the exchange rate is nearing the upper limit of a trading band implemented as part of the South American nation’s $20 billion agreement with the International Monetary Fund.
To stay within that range, officials have required banks to increase the percentage of deposits they need to park at the central bank through the purchase of government debt. That restricts banks’ lending abilities and in turn keeps more pesos out of the system and pushes up borrowing costs.
This time, authorities didn’t announce any previous monetary measures, signaling the government was willing to sell the debt at high rates to ensure demand. Before the auction, the yield for the local notes due in October was at 55.3%.
What Bloomberg Economics Says...
“The peso being so close to the upper bound may be a blessing in disguise. The government has a clear, rules-based, IMF-sanctioned mechanism in place should the currency test that ceiling — the central bank is supposed to intervene to support the band. That can help avoid the kind of rushed policy moves, such as dollar sales by the Treasury or financial repression, that likely damped market sentiment ahead of the provincial vote.”
— Jimena Zuniga, geoeconomics analyst, and Adriana Dupita, deputy chief emerging markets economist
For the full analysis, click here
“It is noteworthy that no reserve requirement hike was announced ahead of this week’s auction,” said Pedro Siaba Serrate, head of Research & Strategy of PPI Argentina.
Before the Buenos Aires election, Quirno surprised traders by saying the government was participating in the exchange market. That has done little to contain the sell off this week, though Argentina’s stocks and bonds inched higher in the past two days after massive losses on Monday. The peso, meanwhile, has continued to slide.
To address the immediate fallout from the provincial vote, Milei created a special working group, signaling he’s willing to strengthen political alliances, though the next concrete steps remain unclear.
A solid rollover was expected, “particularly now that markets have stabilized and Milei is signaling a willingness to strengthen ties with the governors, raising the odds of a respectable showing in the October national midterms,” said Pedro Quintanilla-Dieck, a strategist at UBS.
— With assistance from Manuela Tobias and Ignacio Olivera Doll
(Updates with results of Wednesday debt auction throughout)
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