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Argentina’s currency and government bonds surged on Monday as investors bet that a landslide midterm election victory for Javier Milei’s party has rescued US-backed pro-market reforms and stopped an immediate run on the peso.
Yields on the country’s dollar debt tumbled below 10 per cent, reflecting a surge in prices, after Milei’s La Libertad Avanza won nearly 41 per cent of the vote in Sunday’s legislative elections.
The peso strengthened about 6 per cent to 1,405 to the US dollar on Monday. The country’s Merval stock index soared 20 per cent.
Popular backing for Milei over Argentina’s Peronists, who won 32 per cent of the national vote, is a relief for bondholders, who feared his government would run out of dollars to repay them, despite $40bn in promised US support.
Buenos Aires had burned through scarce foreign currency reserves in its efforts to prop up the peso in recent weeks as worries over the future of Milei’s reform programme caused international investors and local savers to pull money out of the country.
“Argentina’s reform momentum is back, and Milei can legislate from a position of strength, not survival . . . When it comes to the peso, no devaluation is coming after this kind of result,” said Thierry Larose, portfolio manager at Vontobel.
Argentina’s 2035 bond jumped 12 cents in price to 69 cents on the dollar while 2029 debt rose 9 cents to 84 cents, the highest levels since Milei became president in 2023 in the wake of a 2020 default.
Argentina has to repay about $18bn in foreign currency debt in the next year, including $4bn in January. But its foreign exchange reserves net of IMF loans and other borrowings are deep in the red after efforts to tame a rush by local savers into dollars.
Argentine savers have traditionally sought safety in dollar assets ahead of elections given the country’s history of hyperinflation and devaluations.
The peso had fallen from about 1,340 to nearly 1,500 against the dollar over the past month since a Peronist victory in a provincial poll in September indicated Milei’s party might struggle in the wider elections.
The drop threatened to undermine a policy of holding the peso within a preset trading range against the dollar, despite the US spending up to an estimated $2bn to support the currency, and fuelled bets in recent days on a large devaluation after the elections.
“Given the strength of the result, there is obviously less pressure to devalue . . . you will have locals begin to de-dollarise, selling the dollars they purchased in the run-up to the elections as a hedge against political risk,” said Carmen Altenkirch, emerging markets sovereign analyst at Aviva Investors.
“That should give the central bank the space they need to rebuild reserves. It is very different from the sort of outcome that we would have had if Milei had not done so well, and they had been forced to allow the currency to weaken,” Altenkirch added.
US Treasury secretary Scott Bessent signalled US support for Milei on Monday, but did not refer to a financial package he has promised that includes a $20bn US credit line and another $20bn in private sector support for Argentina’s bond payments.
“We look forward to continued steps to economic freedom that will attract private sector investment and job creators, bringing prosperity to the Argentine people,” Bessent said in a post on X.
Investors think that at least some change to Buenos Aires’ exchange rate policy is inevitable, particularly the rate of “crawl”, or official monthly depreciation in its trading range, which at 1 per cent is less than inflation.
But they differ on if or when Milei’s government can float the peso and leave the band behind in the months ahead. “A band-less system may come later in 2026, once capital inflows and FDI increase,” Larose said.
“The government now has political cover — and time — to adjust on its own terms,” said Daniel Lansberg-Rodriguez, managing partner at Aurora Macro Strategies.
Milei was “significantly better positioned to advance these reforms — but delivering on them will still require sustained political will, deft coalition management, and a tolerance for short-term pain that few Argentine presidents have ever managed to sustain”, he added.
