Country risk near 680 points: why Argentine bonds fall despite international relief

In recent weeks, the surge in the yield of U.S. Treasury bonds negatively impacted emerging sovereign debt. However, last week the returns eased, but this external relief did not translate to local bonds. In fact, the country risk rose this Monday to 680 basis points, a one-year high. Analysts assert that the 2027 financial program raises doubts in the market, framed by an advance of electoral risks.{#p-1792429394262-97511}

Between Friday the 9th and Friday the 16th, the U.S. 10-year Treasury yield fell from 5.24% to 5.09%, its lowest level since September 22. This drop in the base rate helped emerging liabilities; however, the country risk increased in each of the four trading days last week, from 589 to 648 points, a trend that this Monday reaches 680 units. "Thus, the relief brought by the first Brazilian round, when it touched 573, was completely erased," reported Cohen.{#p-1792424053061-94969}

This situation highlighted a decoupling: while the international factor had been weighing heavily on prices, the external relief from last week did not translate to the EMBI. "The dollar cost of Argentine debt rose from 11.1% to 11.6% during the week. Since July 10, it has increased by almost 300 basis points, of which only 53 correspond to the U.S. rate," detailed the same report.{#p-1792424347424-5593}

In this regard, in a dialogue with Ámbito, Gabriel Bagattini, a financial advisor representing Finanzas con Gabriel, explained how the interrelation of these two variables works: "The drop in the Treasury rate is usually favorable for Argentine bonds, as it reduces the international reference rate. But that benefit can be neutralized if, at the same time, the additional yield that investors demand to lend to Argentina increases."{#p-1792424970495-4453}

Moreover - as the expert explained - the country risk precisely measures that difference: if the U.S. rate falls and Argentina does not follow, the indicator rises. "Therefore, not every increase in country risk necessarily means that the cost of Argentine financing has increased," differentiated Bagattini.{#p-1792425806057-4175}

Local country risk rises despite external relief: what drives it?

From PPI, they reviewed that last week, while Global bonds lost ground, the EMB ETF (index measuring emerging debt) advanced 0.4% in the same period. The recovery of these markets occurred in line with the drop in the 10-year Treasury rate, which fell by around 15 basis points. "This eased the pressure on the segment and allowed a rebound of high-risk sovereign debt during the week. However, that external relief did not translate to Argentine bonds," added PPI.{#p-1792427658048-99544}

They detailed: "The divergence becomes more evident when adjusting the comparison for the high beta of the Globals. To dimension it, we contrasted their weighted average price with the trajectory that would have explained the movement of the EMB, considering the greater sensitivity of our bonds to the international context. While the average price of Globals fell by 1.7% during the week, the external momentum would have justified a rise of 0.6%."{#p-1792427658048-22482}

That is, Argentine sovereigns fell even when the global scenario played in their favor. "With this movement, the accumulated gap since July between both measures reached 5%, reflecting the weight of the Argentine idiosyncratic component on prices," expanded from PPI.{#p-1792428342491-11101}

"Our reading is that this week the market isolated the problem: the world helped through rates, local data were acceptable, and yet the spread widened. What is being quoted is not solvency in pesos, which the surplus demonstrates month by month, but the ability to obtain the dollars for 2027, which still do not have a defined source," reported this week from Cohen.{#p-1792428375103-29813}

For his part, Bagattini confirmed that although "I would speak of a decoupling in the recent movement, it is not enough to assert that Argentine debt has stopped responding to the international context". "We also need to look at what happened with other emerging markets and why U.S. yields fell: a search for refuge can favor Treasuries and harm higher-risk bonds at the same time," he exemplified.{#p-1792428388666-57836}

In his view, a lower international rate opens an opportunity, but to take advantage of it, Argentina needs to strengthen confidence in its payment capacity. Central to this are the accumulation of reserves, the continuity of fiscal balance, and the financing of upcoming maturities.

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