Country Risk Has a Floor, and Its Name Is 2027
1. Country risk broke below 500 basis points
What happened? Country risk closed at 490 basis points, 24 lower than the prior Friday, in its fourth consecutive decline. Bonares and Globales gained roughly 1% on average over the week. The spread between local-law and foreign-law bonds compressed to about 120 basis points. So far in 2026 the index has fallen 60 points.Why it matters? Country risk is an arithmetic result, not an opinion: it measures how many points above the US Treasury Argentina has to pay for someone to lend to it. At 490 basis points, with the Treasury at 4.78%, issuing would cost close to 9.7% annually in dollars, a level that in practice keeps the market closed. The usual reference point is 450 basis points. What is at stake is concrete: if the country can roll over its dollar maturities, it frees up reserves; if it cannot, every payment shrinks them.Our View: We believe the compression reflects flows more than any fresh improvement in fundamentals, and we expect country risk to stay volatile as we approach the 2027 presidential elections. Whatever level it reaches, we do not expect a return to international markets, contrary to what official statements anticipate. We remain positioned in the short end of the dollar curve to mitigate that volatility.2. Peso rates broke below 20%
What happened? The one-day repo rate, the rate at which investors lend pesos to each other for 24 hours, closed at 19% annually. At the end of August it stood at 21% and a month earlier close to 28%. The fixed-rate curve compressed to 26.6% annual effective rate through November, against 27.6% the previous week. With expected inflation between 1.6% and 1.8% monthly, short rates are now in negative or barely neutral real territory.Why it matters? The peso rate is the opportunity cost of dollarizing: it is what you give up by moving into dollars. That is why a rate cut is only sustainable if it comes with an equivalent decline in expected devaluation. If one falls and the other does not, the arithmetic flips and dollarizing becomes the better trade. Today both are falling at once, but the margin is no longer even: the fixed-rate curve through November, at 26.6% annual effective, still beats the 1.7% monthly adjustment priced by futures, while the repo rate at 19% has already fallen below it.Our View: We see a rate decline that reflects liquidity, not conviction on disinflation. Falling short rates with a contained gap are sustainable as long as the dollar stays put, but they leave little protection if CPI surprises. We prefer CER-linked coverage at the short end over extending fixed-rate duration at these levels.3. The dollar sits still and devaluation expectations fall
What happened? The wholesale dollar closed at ARS 1,508, unchanged on the week. The Banco Nación retail rate stood at ARS 1,530, five pesos lower, and the blue at ARS 1,540. MEP ended at ARS 1,522.52, with a gap of just 1%, and contado con liquidación at ARS 1,586.63, with a gap of 5.2%. The top of the band sits at ARS 1,885, 24% above. Futures price the wholesale rate near ARS 1,610 by year-end.Why it matters? The gap between the official dollar, managed within a band scheme, and the financial rates MEP and CCL, which come from buying a peso bond and selling it in dollars, is the best available indicator of FX tension: when it widens, it is saying the official price is perceived as artificially low. At 1% and 5.2% it is effectively closed. Futures add the forward-looking view, and pricing ARS 1,610 against a ceiling of ARS 1,885 means the market does not expect the scheme to be tested this year.Our View: We believe the market has stopped paying for FX insurance, and that is as much an achievement of the scheme as a sign of complacency. We see the top of the band as too far away to trade, but the key is not the ceiling, it is supply: with no agro flows and thin Central Bank purchases, the calm depends on demand not showing up. Neutral bias on dollarization, with a preference for doing it through CCL rather than MEP given the gap between the two.4. Reserves rise, but the Central Bank barely buys
What happened? Gross reserves closed at USD 50,756 million, up USD 965 million on the week. But Central Bank purchases in the official market were just USD 127 million across five sessions. In August total purchases fell to USD 768 million from USD 2,162 million in July. Agro settled USD 2,750 million in August, 6% less than in July and 12% less than a year ago.Why it matters? If the country does not return to capital markets, every dollar maturity is paid, among other resources, with reserves. That is why investors use them as a direct proxy for repayment capacity, and do not look at the gross stock, which includes reserve requirements, swaps and disbursements that eventually have to be returned, but rather at how many of its own dollars the Central Bank adds month to month. That is where the link with country risk lies: a purchase pace that stalls erodes perceived repayment capacity and, if sustained, sooner or later gets paid for in wider spreads.Our View: We believe the market will keep watching the purchase pace closely, and we project it stays positive even past agro seasonality. We assign it some capacity to influence country risk, but in a limited way: it is not the variable setting the price today. We see electoral risk as the dominant factor, and for that reason we expect volatile country risk, with a floor that is unlikely to break below 400 basis points until the 2027 scenario is more clearly defined.5. August tax revenue matched inflation
What happened? August tax revenue came in at ARS 20.5 trillion, 33.5% higher than a year ago in nominal terms and 0.3% lower in real terms, against year-on-year inflation of 33.8%. VAT collections fell 3.1% in real terms and the financial transactions tax advanced just 21.5% nominally. Export duties jumped 155.1%. Over eight months revenue has accumulated a real decline of 4%. For August CPI, which INDEC publishes on Thursday the 10th, consultancies expect between 1.5% and 1.8%.Why it matters? Tax revenue is the fastest and least disputable activity indicator that exists, because it is money that came in. Within it, two taxes work as an X-ray of consumption: VAT, charged on every sale, and the financial transactions tax, which levies every bank movement. That both are falling in real terms while the total holds up thanks to agro says domestic activity is not keeping pace. That is the uncomfortable explanation behind the good inflation print that is expected: when prices ease because nobody can validate increases, disinflation is real but fragile.Our View: We believe tax revenue is currently the best thermometer of an activity level that is not picking up in labor-intensive sectors: VAT and the transactions tax, the two levies most sensitive to consumption, are falling in real terms. We see disinflation resting on weak demand more than on a change in the price regime. For the local investor, that supports the peso curve in the short term but caps the upside for equities.6. The Merval recovered 3 million points on the back of oil
What happened? The S&P Merval rose 2.2% on the week to 3,049,122 points. Adecoagro led with 6.2%, followed by Bioceres with 6.1%, Loma Negra with 5.5%, Edenor with 5.4% and Ternium with 4.9%. YPF advanced 3.3% and cleared USD 52 per share, tracking Brent. Supervielle gained 4.3% and Pampa 4.2%. On the downside, Globant fell 3% and Banco Francés 1.8% on Friday.Why it matters? An index up 2.2% says little; what says something is what rose inside it. Leadership came from energy and exporters, that is, from what trades against the world rather than against Argentina. The telling laggards are the banks, the asset most leveraged to an improvement in sovereign risk, because they hold public debt on their balance sheets and because their business expands when the country finances itself more cheaply. That they did not join the move admits two readings: either the market does not fully believe in the country risk decline, or there is a lag still to be corrected.Our View: We see an imported rebound: what rose was what benefits from crude at USD 96, not what depends on the local cycle. Banks, the asset with the most leverage to a country risk decline, were left behind. We believe that lag is the opportunity if spread compression holds, and the warning sign if oil turns.
Country Risk Has a Floor — and It’s Called 2027
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