Argentine dollar bonds show yield curve inversion from 2027

The dollar-denominated bond market in Argentina is showing signs of credit risk, characterized by an inversion of the yield curve starting from 2027. This inversion suggests that investors are pricing in significant risk premiums for maturities exposed to the upcoming electoral cycle and uncertainty regarding debt administration after 2027.

Short-term securities, such as the AO27, are offering yields near 7%, while longer-term bonds exceed 10%. The implied forward rate reaches a peak near 14% around 2028, indicating that the market perceives concentrated risk during the electoral period rather than a permanent deterioration of Argentine risk.

Alejo Costa, chief economist at Max Capital, noted that while the market is incorporating higher electoral risks, there remains an optimistic view regarding President Milei. However, recent polls suggesting a decline in his image may lead to a more competitive election than previously anticipated. Additionally, a spread exists between local law and foreign law bonds, with Argentine law titles like AL35 and AL38 showing higher yields than their New York law equivalents.