Seven years after the country's last exploitation of global capital markets, Argentina raised $1 billion in economic confidence votes from international investors.
Peso-denominated sovereign bonds issued under Argentine law, targeting foreign investors only, are provided in US dollars, which will increase the country's foreign currency reserves but pay in peso. It was issued with a 29.5% coupon and matured in 2030.
"Good news," Milli's economy minister Luis Caputo said on X, officials announced the offer more than the government set a maximum of $1 billion. “It is essential to be able to refinancing mainly mature!”
Caputo claims the auction represents a “return to international market visit” in Argentina after the surge in borrowing costs issued by the restructuring in 2020, although the bond is not spent in US dollars and is not issued under foreign law.
But, analysts said Wednesday's auction showed an increase in demand for Argentina's debt.
William Jackson, chief emerging market economist at capital economics, said Milei made significant progress by re-establishing budget deficits and raising most capital controls while also receiving a $20 billion IMF agreement in April to increase central bank reserves. “This strengthens investors’ confidence and the government’s confidence that debt can be issued successfully.”
The bond includes a two-year perspective that allows investors to withdraw before the 2027 presidential election, and voters will decide whether to continue the president's austerity and deregulation.
Since Milei won the election in late 2023, Argentina's borrowing costs have fallen. Investors demanded interest premiums for holding Argentina's dollar debt fell from 25 percentage points to 6.66 percentage points. Wednesday's coupon reflects Argentina's peso benchmark interest rate of 29%.
But investors are still nervous about Miley's exchange rate policy, which has significantly strengthened the peso over the past year, and his slow pace in rebuilding the central bank's coin reserves will require repayment of some of the country's debt until it returns to the capital markets completely.
"For years, we didn't know what the monetary system is," said Christine Reed, manager of emerging market debt fund.
"The presidential election will be held within two years. It is particularly valuable to investors, as the execution orders have completed many changes in the Milli government. These executive orders are easy to relax in another government."
In April, the IMF paid $12 billion in advance from the International Monetary Fund (IMF), canceling reserves from dangerously low levels earlier this year. But Argentina still remains far from the target agreed by the fund that accumulated $4.4 billion in its reserves on June 13.
The government said it is conducting a $20 billion buyback agreement with several international banks to help achieve reserve targets.
Milei promised not to build reserves in the same way as the previous Argentine government, as he hoped to avoid expanding the country's monetary base and weakening the peso, which could reignite chronic inflation.
Data released last week showed that central banks spent at least $409 million in April to support peso in the futures market, although the IMF loan agreement said authorities could intervene only if “improper market conditions occur.”
Milei said that if the currency strengthens the currency to 1,000 pesos of USD, the upper band of the floating-point exchange rate agreed to the IMF cap in April, he would only buy the USD. The peso traded at a rate of 1,160 per dollar on Wednesday.
In 2018, the last unusual mechanism used by Argentina to sell bonds in USD was designed to address such self-imposed restrictions, economists say.
This will allow Milei to actually buy dollars using PESO issued by the central bank earlier this year, said Salvador Vitelli, head of research at Romano Group Consultancy in Buenos Aires.
"It's a way to buy the dollar indirectly, which helps answer investors' major doubts about reserve accumulation. This can help further reduce the risk to the country," he added.