Global market volatility threatens one of Mileis key goals

Global financial volatility and especially the swings in the U.S. Treasury market, the global economy’s bellwether risks impeding one of the Argentine government’s central goals: a return to international debt markets. “The current level of long-term U.S. bond yields matters because it marks a shift in the global price of money,” Auxtin Maquieyra, commercial manager at the brokerage Sailing Inversiones, told the Herald. “When the risk-free rate goes up, every financial asset in the world has to reprice: stocks, corporate credit, emerging-market debt, and sovereign bonds,” he added. This past week, 10-year Treasury yields hit their highest level since early 2025. The 30-year yield, meanwhile, is at its highest point since 2007, just before the global financial crisis. The impact on Argentina Nicols Kohn, head of wealth management research at the brokerage Balanz, told the Herald that “the global dynamic could have a local impact, mainly through the rise in Treasury yields.” If that happens, investors would back away from risk assets, which could weigh on the valuations of emerging-market bonds Argentina’s included. Maquieyra noted that countries with higher credit risk, like Argentina, “are more exposed, because the rate they have to pay doesn’t depend only on country risk, but also on the starting point of the U.S. rate” particularly the 10-year Treasury. In other words, even if Argentina’s own risk held steady, “a rise in Treasury yields automatically means a higher cost of external financing.” Maquieyra said the potential hit to Argentina could come from two directions. The first would be a direct rise in the discount rate: “If the risk-free bond pays more, Argentine bonds need to offer an even higher rate to remain attractive.” The second could come through a rise in country risk, “as global capital tends to rotate toward safer assets when those start paying higher yields.” The battle to lower country risk The Milei government’s big bet is to lower country risk. That would clear the way for Argentina to tap international markets to refinance its foreign debt without relying on multilateral lenders or paying off maturities with international reserves. JPMorgan’s EMBI+ index currently puts Argentina at 524 basis points. That means if Milei’s administration tried to issue debt abroad, it would have to pay an interest rate of somewhere between 9% and 10% a year well above what its neighbors pay. For comparison, Brazil’s country risk stands at 181 basis points, Chile’s at 83, and Uruguay’s the lowest in Latin America at 63. Late last year, the economy ministry flirted with the idea of issuing foreign debt, taking advantage of the sharp drop in country risk after its November electoral win.  It even tapped former YPF CFO Alejandro Lew to lead those efforts. In the end, the government scrapped the plan, a decision that also sealed Lew’s exit just four months after his appointment. “Argentina has market access, but we want lower rates, and until we get them, we’re going to look for other mechanisms that are cheaper,” Milei said in recent comments. So far, the government has opted to place dollar bonds in the domestic debt market and to draw on funds from its latest agreements with the World Bank and the Inter-American Development Bank (IDB). A blow from Brazil? Brazil is another country in the region feeling the effects of this international volatility in sovereign bonds and has watched foreign capital pull out in recent weeks. According to Delphos Investment data, Brazil recorded outflows of more than US$4.3 billion in a single month. One domestic trigger was the recent slide in the polls of right-wing candidate Flavio Bolsonaro. The drop came following revelations about his ties to Daniel Vorcaro, the former Banco Master CEO who is facing accusations of bribery and fraud connected to the bank’s collapse, an incident that could become the largest banking fraud in Brazilian history. The news forced investors to reset their expectations ahead of October’s presidential elections. The development could hurt Argentina, since Brazil is its main trading partner, ahead of China, the European Union, and the United States. Honorio Zabaleta, an economist at Eco Go, said the main problem for Argentina could arise if financial volatility drags down the Brazilian real, which would put pressure on Argentina’s exchange rate. The development could spark an imbalance on the external front, as Milei’s government would lose competitiveness against the neighboring currency. For now, though, that scenario hasn’t played out. “The Brazilian real has held firm, going from 4.9 to 5 per U.S. dollar,” Zabaleta noted. “A devaluation like the one in 2024 would be more alarming. Back then, the real-U.S. dollar exchange rate reached almost 6.2, which strongly affected Argentina’s current account balance. For now, it’s a matter of hoping that the stock correction doesn’t spread to Brazil’s exchange rate,” he added. Cover image: United States Treasury (Credit David Guerrero/Pexels)