Argentina’s bonds wobble as investors eye US Bessent’s support pledge

By Rodrigo Campos and Libby George

NEW YORK/LONDON (Reuters) -A rally in Argentina’s international dollar bonds fizzled on Thursday after U.S. Treasury Secretary Scott Bessent said the U.S. is “not putting money into Argentina” shortly after saying that upcoming in-person discussions in Washington would “meaningfully advance” the country’s pledge of financial support for President Javier Milei’s government.

Bonds, which rose roughly two cents after Bessent’s initial comments, traded negative shortly after his “no money” statement and were little changed in afternoon trading.

Milei, a right-wing leader whose aggressive reforms have made him a darling of the Trump administration, had said Wednesday night that part of the negotiations with the U.S. included purchases of bonds in the secondary market and “profit-sharing.”

Bessent said last week the U.S. is in negotiations over a $20 billion swap line with Argentina’s central bank and stands ready to do what is needed to support the South American country.

The 2030 maturity was trading largely flat by 1400 GMT, after rising more than 2 cents earlier. Argentina’s bonds were down 15% this year to Wednesday at the index level after having risen over 100% in 2024.

The peso is down almost 30% to the dollar year-to-date, even as the government has stepped in to defend it in the spot market and retains some FX controls. Analysts consider it overvalued, and a Reuters poll this week shows it is expected to devalue further after the October 26 midterm election.

The IMF, a big supporter of Milei’s economic reform program, said Thursday Argentina needs to commit to a fiscal anchor and a consistent monetary policy and foreign exchange framework, and build “broad political support to secure the implementation of the authorities’ ambitious reform agenda.”

MARKET IS TESTING TREASURY RESOLVE

Argentina’s financial markets, which rallied strongly after Bessent’s initial support pledge last month, have fallen in recent days amid uncertainty over U.S. backing and concerns over the fate of Milei’s reformist agenda after mid-term legislative elections later this month.

The local peso, which last week strengthened close to 11% against the U.S. dollar, is down 6.7% so far this week.

“The market is testing the U.S.’s resolve to help Argentina,” said Aaron Gifford, senior emerging market sovereign analyst at T. Rowe Price, adding that the lack of details – and uncertainty caused by the U.S. government shutdown – were weighing on bond prices.

The U.S. government shutdown, in its second day, added to worries over the country’s plans for Argentina, while pushback from some U.S. Republicans also raised red flags.

Last month, in an effort to secure foreign currency, Argentina’s government temporarily suspended export taxes on grains, enabling $7 billion in sales in just a few days.

The sales calmed markets temporarily, but also rankled some U.S. Republicans, such as powerful Iowa Senator Chuck Grassley, who in a post on X questioned why the U.S. would “bail out” Argentina “while they take American soybean producers’ biggest market.”

“Washington is highly polarized, and the last thing anybody wants to hear in the White House is someone saying that you’re using U.S. taxpayer money to bail out that hedge funds the bought the Argentine debt,” said Joydeep Mukherji, managing director of sovereign ratings for S&P Global.

And while many thought the U.S. support would buy Milei time to make it to the election, markets have proven more fickle.

“The short tax break on commodity exports – it worked for a few days, but not anymore,” said Viktor Szabo, portfolio manager with Aberdeen. “Now the expectation is that they will have to devalue after the midterms, so everyone is frontrunning it.”

(Reporting by Libby George and Rodrigo Campos, additional reporting by Marc Jones in London; Editing by Amanda Cooper, Chizu Nomiyama, Marguerita Choy and Diane Craft)