Argentina Heads to the Polls. The Outlook for Bonds.

A plunging currency could reignite the runaway inflation that Argentina’s President Javier Milei has managed to quell. (Tomas Cuesta/Getty Images)

All the money in the U.S. Treasury might not be enough to save Javier Milei’s Argentina shock therapy program after this Sunday.

The country holds midterm elections Oct. 26, with its chain saw–wielding president needing at least one-third of the Lower House seats to keep his Peronist opponents from a veto-proof supermajority. Only half the chamber is up for re-election.

If Milei beats his one-third threshold, Argentine sovereign bonds, trading at similar spreads to Ukraine’s, could look like a buy again. Investors aren’t rushing to make that bet, though.

“I do view Sunday as a pretty binary situation,” says Alejo Czerwonko, chief investment officer for emerging markets Americas at UBS Global Wealth Management. “If there’s a sizable defeat for Milei, the downward spiral would resume.”

The latest spiral started Sept. 7, when the Peronists drubbed Milei’s Freedom Advances party in local elections in Buenos Aires province. Bonds due in 2038 lost a quarter of their value over the next two weeks, plunging to 43 cents on the dollar.

U.S. Treasury Secretary Scott Bessent sprang to the rescue, promising a $20 billion swap line for Argentina’s beleaguered central bank. That pushed both bonds and the peso back up to pre–Buenos Aires election levels, for a while. They have been sliding again over the past week.

Bessent implicitly admitted that the first $20 billion would be insufficient, dangling another $20 billion Band-Aid backed by private banks and investors on Oct. 15. President Donald Trump said further assistance will be “somewhat subject to who wins the election.”

“Markets understand that even $20 billion will run out,” says Monica de Bolle, a senior fellow at the Peterson Institute for International Economics. “There’s no logic to the private sector putting up another $20 billion.”

Milei looks to be in for a close shave in the midterms. Current polling, notoriously imprecise in Argentina, shows the Peronists winning 64% of Parliament’s Lower House, a whisker away from the two-thirds supermajority, says Matt Gertken, geopolitical strategist at BCA Research.

“It requires a high risk tolerance to be one of the early movers in that situation,” he adds.

If Milei does squeak by, he will still face the problem he has been avoiding most of this year: With inflation still above 30% annually, the peso should be devaluing much faster than the bands the government has set for it.

A plunging currency could reignite the runaway inflation that Milei has managed to quell. He has no alternative, though, however much support Washington pours in, says Mark Sobel, a longtime Treasury official who’s now a senior adviser at the Center for Strategic and International Studies. “Regardless of the political outcome, the peso will fall, and very soon,” he predicts.

On the other hand, with no superpower invader to repel, it seems logical that Argentina’s debt should trade tighter than Ukraine’s, eventually. One generally predictive green shoot is sprouting beneath the political clamor: Buenos Aires apartment prices have been increasing (in dollar terms) since early last year, after six years of decline, by official statistics.

The rambunctious Milei is maturing politically, UBS’ Czerwonko observes, “making efforts to appear more empathetic.” His economic team is “very creative and resourceful.”

The Peronists, for their part, offer little except a return to the calamitous past. “On a five- or 10-year time frame, Argentina is an improving emerging market,” BCA’s Gertken asserts.

For shorter-term trades, watch the election results.