Argentina assets rally as Bessent details strong US support

By Rodrigo Campos and Marc Jones

NEW YORK/LONDON (Reuters) -Argentina's financial assets rallied for a third straight day on Wednesday after U.S. Treasury Secretary Scott Bessent detailed massive support for Argentine President Javier Milei's right-wing government and the country's markets.

Bessent said the U.S. was in negotiations over a $20 billion currency swap line with Argentina's central bank, and said it was prepared to purchase Argentina's dollar-denominated bonds in the secondary market.

The South American country has tools to fight "those who seek to destabilize Argentina's markets for political objectives," Bessent said, reaffirming the political connection to the U.S. support. On Monday, he said the administration was seeing a shift to the right in Latin American politics when he teased the U.S. backing of Milei's project.

Numerous U.S. companies would invest in Argentina "in the event of a positive election outcome," Bessent said.

Argentina goes to the polls on October 26 for legislative midterm elections, in which Milei's party aims to gain seats to strengthen its minority position. In early September, the party suffered a bruising defeat in local elections in the populous Buenos Aires Province amid accusations of corruption inside Milei's circle, including his sister and close confidant Karina Milei.

"This degree of U.S. support for Argentina was beyond what any analyst could have imagined just a few weeks ago," said Alejo Czerwonko, chief investment officer for emerging markets in the Americas at UBS. "It stands among the strongest examples of U.S. Treasury backing in the history of emerging markets."

Argentina's 2030 bond rose 3.5 cents in price to trade at 74.78 cents on the dollar, while the Global X Argentina stocks ETF added 2%, with bank stocks leading the gains. The local stock benchmark rose 1.5% after rising as much as 6.6% earlier.

The peso shaved some of the day's gains to strengthen near 2%, taking the weekly gains versus the U.S. dollar to 10%.

"We would like to see a policy shift that allows for the central bank to accumulate international reserves aggressively," said Alexis Roach, emerging markets sovereign analyst at Payden & Rygel. "This should translate into changing the monetary framework to allow for more currency flexibility."

Bonds had fallen as much as 20% for the year as of last week and the local peso was hitting against the weaker limit of a band set in place in April, in connection with a $20 billion program approved by the International Monetary Fund. The central bank had to burn over $1 billion last week in defence of the currency.

Aberdeen fund manager Kevin Daly said this week's sharp rebound in bond prices meant there was now "limited upside" going into the midterms, with the focus being on how Milei's party fares and how far and fast the peso will be allowed to fall after the vote.

"This U.S. (support) is coming to the rescue but that alone won't save Argentina. It has to take steps too," Daly said.

MARKET BOUNCE BACK

The market has rebounded dramatically after Bessent said on Monday the U.S. would do whatever it takes to support Milei and Argentina's reforms.

"It's hard to know if this will influence the midterm results but certainly it improves Milei's negotiating power with governors and offers the country more firepower to defend itself in the case of an adverse outcome," said Aaron Gifford, senior EM sovereign analyst at T. Rowe Price.

He said Argentina's macroeconomic fundamentals are not concerning despite a dip in overall growth, while foreign exchange reserves accumulation, a main concern, should be covered by the U.S. support.

"Tail risks have been significantly reduced, and the rally should continue at least in the near term," he said.

(Reporting by Rodrigo Campos and Marc Jones; Editing by Andrea Ricci and Richard Chang)

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