Spreads have more than doubled since July as investors price the risk of Milei losing in 2027; Morgan Stanley says the sell-off has gone too far.
Argentina's sovereign dollar bonds are sliding toward distressed levels as investors bring forward their worries about the 2027 presidential election, the Buenos Aires Times reported.
In the first week of November the bonds were heading for their worst week in more than a year, the paper reported. The benchmark 2035 note lost more than three cents on the dollar, lifting its yield to 13.77% from 12.67%, and the extra yield investors demand over US Treasuries widened by almost 140 basis points to 928 in the first four days of the week, more than double its July low, according to a JPMorgan index. Around 1,000 basis points is the level commonly seen as distressed. In July, country risk had touched an eight-year low near 400 basis points and investors expected a return to international markets; the government chose not to issue abroad.
Investors told the paper that a global retreat from risk explains only part of the move. The country still runs a fiscal surplus and exports are strong, but markets have begun pricing the election early. A model by Portfolio Personal Inversiones put the implied probability of President Javier Milei's re-election at about 45%, down from about 90% in July, and, according to the paper, the re-election of Luiz Inácio Lula da Silva in Brazil and Republican losses in the US midterms added to the unease.
Morgan Stanley argues the sell-off has overshot. Strategist Simon Waever wrote that the bonds now imply a 41% to 52% probability of the bank's bear case, against 11% to 20% three months earlier, and that pricing so much of it a year before the vote is not warranted. He does not expect bonds to recover all their losses but called the long end of the curve, including 2041 notes, attractive. Argentine dollar bonds are down about 14% since the end of July, the weakest performance among emerging markets.
