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The Next Big Test for Argentina’s Bonds: October Elections

Sep 23, 2025 13:08:00 -0400 | #Bonds

Buenos Aires’ provincial elections earlier this month led to big losses for the peso. Above, a voter casts a ballot. (Anita Pouchard Serra/Bloomberg)

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A few words from U.S. Treasury Secretary Scott Bessent bought budget-slashing Argentine President Javier Milei time—about five weeks, to be exact. That’s when Milei faces midterm legislative elections, hoping to improve on his party’s disastrous performance in Buenos Aires province on September 7.

If he doesn’t, even Washington’s resources may not save his free-market revolution. “Bonds will stay in their current range until elections,” predicts Jeff Grills, head of emerging markets debt at Aegon Asset Management. Election Day is October 26.

Argentines and foreigners alike began to “panic,” in Milei’s own phrase, after his Freedom Advances party lost by 13 percentage points to its Peronist rivals in Buenos Aires, home to 40% of Argentina’s population. The peso crashed through the lower band Milei’s government had set, forcing the central bank to burn scarce dollar reserves to defend it. A crashing currency would raise the price of imports, threatening Milei’s signature achievement of reining in runaway inflation just as the rest of the nation went to the polls.

“An aggressively weakening currency might make it difficult for Milei to do well,” says Jae Lee, an emerging markets portfolio manager at fixed-income investor TCW. Bessent stepped in first thing Monday morning, tweeting: “The U.S. Treasury stands ready to do what is needed within its mandate to support Argentina.”

An hour later he clarified, “These options may include, but are not limited to, swap lines, direct currency purchases, and purchases of U.S. dollar-denominated government debt from Treasury’s Exchange Stabilization Fund.” The Stabilization Fund, established by the New Deal in 1934, is estimated at $30 billion, more than enough to cover Argentina’s annual debt service of around $12 billion.

Panic momentarily reversed. Argentina’s dollar bond yields contracted by as much as seven percentage points, and the peso jumped 4%, reports Aaron Gifford, an emerging markets sovereign analyst at T. Rowe Price. “There could still be a happy ending for Argentina,” he assesses. “Not a euphoric ending, but a happy one.” But that is still a ways off.

The Bessent rally tightened yields on benchmark Argentine bonds to around 15%, with prices just above 50 cents on the dollar, Grills says. The next-riskiest emerging market dollar credits, from the likes of Ecuador or Angola, are in the 11% range. Before the Buenos Aires debacle, Milei’s people were charting a course to single-digit yields next yea—low enough for them to issue new bonds. That could still happen, Grills thinks, if Milei bounces back in the national midterms.

The electoral math is complicated: Only half the lower house of Congress and one-third of the Senate are up for election. Liberty Advances, a newly minted party built around Milei, currently has few seats in either. Milei’s target is at least one-third of the lower house, enough to prevent legislators from overriding presidential vetoes. “If he doesn’t get one-third, all bets are off,” Grills says.

On the flip side, success by Milei in the midterms could fuel more explosive gains for investors. T. Rowe’s Gifford is hopeful, noting that Milei’s Peronist nemesis, Cristina Kirchner, is more unpopular than he is, and the Buenos Aires province is a traditional Peronist stronghold. “We see value in Argentina, though there’s still a lot of unknowns and uncertainty,” he says.

TCW’s Lee expresses similarly qualified optimism. “It’s become much more difficult to be bearish,” he says. “The market has priced in a lot of bad news.” Any bold moves on Argentine assets will probably wait until
Oct. 26, though.

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