Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Argentina has raised $1bn from international investors in a vote of economic confidence for libertarian president Javier Milei seven years after the country last tapped global capital markets.
The peso-denominated sovereign bond, issued under Argentine law and targeted solely at foreign investors, was offered in dollars — a move that will boost the country’s foreign currency reserves — but pays out in pesos. It was issued at a coupon of 29.5 per cent and matures in 2030.
“Excellent news,” Milei’s economy minister Luis Caputo said on X after officials announced that offers had exceeded the $1bn maximum set by the government. “Being able to refinance principal maturities is crucial!”
Caputo has claimed the auction represents Argentina’s “return to international market access” after a 2020 restructuring sent borrowing costs soaring, although the bond does not pay out in dollars and was not issued under foreign law.
Nevertheless, analysts said Wednesday’s auction demonstrates increasing appetite for Argentine debt.
William Jackson, chief emerging markets economist at Capital Economics, said Milei had made significant progress by reining in the budget deficit and lifting most capital controls while securing a $20bn IMF deal in April to increase central bank reserves. “That’s boosted investor confidence, and the government’s confidence that it can successfully issue the debt.”
The bond includes a two-year put option, allowing investors an exit before 2027 presidential elections where voters will decide whether or not to continue the president’s austerity and deregulation drive.
Argentina’s borrowing costs have plunged since Milei’s election victory in late 2023. The interest premium over US Treasuries that investors demand to hold Argentine dollar denominated debt has fallen from more than 25 percentage points to 6.66 percentage points. Wednesday’s coupon reflects Argentina’s peso benchmark interest rate of 29 per cent.
But investors remain nervous about Milei’s exchange rate policy, which has significantly strengthened the peso in real terms over the past year, and his slowness in rebuilding the central bank’s hard currency reserves, which will be needed to repay some of the country’s debts until it fully returns to capital markets.
“Over five years, we don’t know what the currency regime will be,” said Christine Reed, an emerging markets debt fund manager at Ninety One.
“In two years there will be a presidential election. The put is particularly valuable to investors as a lot of the changes made by the Milei administration have been done by executive orders. These can be very easy to unwind in another administration.”
A $12bn upfront payment from the IMF in April lifted reserves from perilously low levels earlier in the year. But Argentina remains far off the goal it has agreed with the fund of accumulating another $4.4bn in its reserves by 13 June.
The government has said it was negotiating a $2bn repurchase agreement with several international banks to help meet the reserves target.
Milei has pledged not to build reserves in the same way as previous Argentine governments by issuing pesos to buy dollars, because he wants to avoid expanding the country’s monetary base and weakening the peso, which could reignite chronic inflation.
The central bank spent at least $409mn in April to prop up the peso on futures markets, data published last week shows, despite the IMF loan deal saying authorities should only intervene if “disorderly market conditions arise”.
Milei has said he would only buy dollars if the currency strengthens to 1,000 pesos to the dollar, the upper band of an exchange rate float agreed with the IMF in April. On Wednesday the peso was trading at a rate of 1,160 per dollar.
The sale of peso-denominated bonds for dollars, an unusual mechanism last used by Argentina in 2018, was designed to get around that self-imposed restriction, economists said.
It would allow Milei in effect to buy dollars using pesos issued by the central bank earlier this year, said Salvador Vitelli, head of research at the Romano Group consultancy in Buenos Aires.
“This is an indirect way of buying dollars, which helps answer the big doubt that investors had about reserve accumulation. It could help further lower the country risk,” he added.
