MercoPress. South Atlantic News Agency

Argentina's country risk hits an eight-year low as rating upgrades lift dollar bonds

Market analysts believe there could still be room for additional compression, though they warn it would be more limited

Argentina's country risk closed this week at 421 basis points, its lowest level in eight years, amid a strong recovery in dollar-denominated sovereign bonds driven by recent improvements in the country's credit rating. The indicator, compiled by the bank JP Morgan, reflects the premium Argentina must pay to borrow in dollars over US debt, considered risk-free.

The compression accelerated after the decisions by the agencies Fitch Ratings, in May, and Standard & Poor's, in June, to raise Argentina's sovereign rating to “B-,” leaving behind the category associated with a very high risk of default. The rating agencies attributed the improvement to fiscal adjustment, slowing inflation, the recovery of reserves and the government's greater capacity to refinance its maturities. Dollar-denominated debt securities gained more than 10% in the first half of the year. The market is now watching the payment of some $4.2 billion in principal and coupons on the Bonar bonds, scheduled for next week, and expects part of those funds to be reinvested, which could give a further boost to prices.

Market analysts believe there could still be room for additional compression, though they warn it would be more limited. The consultancy Delphos Investment estimated that country risk could fall another 130 to 150 points to align with similarly rated countries, which yield around 300 points, but recommended that investors “capitalize part of the gains” and rotate toward top-tier corporate bonds, considered a more defensive option. Other firms agreed on a more selective approach: Portfolio Personal Inversiones said that, with the upgrade “already priced in,” the additional potential “looks more limited.”

Despite the improvement, specialists stress that Argentina still pays a risk premium far higher than its regional peers: Mexico stands at around 164 points, Brazil at 178 and Peru at just 91. In addition, the possibility of the country returning to issue debt on the international market remains limited, since the recent rise in the yield on ten-year US Treasury bonds —which climbed to 4.47%— makes any issuance more expensive.

The government itself played down the possibility of an immediate return to the markets. The finance secretary, Federico Furiase, held that the fall in country risk “is not enough” on its own and that the foreign-currency debt maturities for 2026 and 2027 are already covered with available sources, including loans backed by multilateral organizations. Meanwhile, the wholesale dollar rose to 1,489 pesos, close to its nominal record, in a session with trading volume above $800 million.