US job data complicates Argentinas return to global debt markets

President Javier Milei’s government was close to seeing Argentina log its lowest country-risk reading since taking office a prerequisite for tapping international debt markets but the latest U.S. data appears to have set those plans back once again. On Friday, the Bureau of Labor Statistics released its monthly tally of new jobs added to the U.S. economy, popularly known as the jobs report. May saw 172,000 new positions created, more than double the market’s expectations. On top of that, April’s figures were revised upward: the original reading had been 115,000 already above initial projections but was bumped up to 179,000. The data pointed to a significant recovery in the U.S. economy. Wall Street, however, took it badly because it gives the Federal Reserve room to keep interest rates steady through 2026, or even raise them further to fight inflation. How does this affect Argentina? That scenario would have negative consequences for many countries, Argentina included. Mariano Ortiz Villafae, chief economist at the brokerage Aldazabal, said that higher Fed rates “represent a risk for fixed-income assets in emerging markets.” That includes Argentine sovereign bonds, he added. The timing matters, since it comes at a moment “when the compression of Argentina’s country risk is once again opening up the possibility of a return to the debt market.” Justina Gedikan, a fixed-income specialist at Cohen brokerage firm, said there are two ways this could hit the Milei government. On one hand, it reduces “global appetite” for risk assets, such as Argentine bonds. “A ‘higher for longer’ environment interest rates that stay elevated for an extended period encourages a ‘flight to quality’ a move toward safe assets and dampens interest in high-yield credit like Argentina, which is competing against increasingly attractive Treasuries.” On the other hand, it makes it harder to raise financing on international markets. “Even though Argentina doesn’t currently access voluntary international debt markets, the expectation of higher rates sets a higher floor on the cost of any future refinancing.” Martn Cordeviola, international markets analyst at Portfolio Personal Inversores (PPI), added that the rise in U.S. rates “drives up the dollar” against the world’s major currencies, such as the euro, the yen, and the yuan. That “correlates negatively with commodities and weighs on the outlook for those countries.” Since commodities are priced in dollars, when the U.S. currency strengthens, the products become more expensive for importers operating in other currencies. That slows demand and pushes prices down. How low does country risk have to go? Argentine country risk JPMorgan’s EMBI+ index bounced back today to 495 basis points amid poor international climate, breaking Thursday’s downward trend. It had been at 486 points, just two above its lowest reading under the Milei administration, set in January. “At some point, Argentina is going to have to try to tap international markets to clear out the debt maturities of the coming years. So the fact that the total financing cost of a potential issuance is going up isn’t good news,” Cordeviola added. Asked by the Herald, Gedikan said country risk would need to be between 400 and 450 basis points for Milei’s government to access the international debt market without paying excessively high interest rates. Economist Gustavo Ber was a bit more demanding, estimating that it would need to drop to 350 basis points. Even so, he said that “as the credit profile keeps improving, the index should continue compressing toward regional levels over time.” Gedikan agreed, noting that the Central Bank’s reserve accumulation, fiscal consolidation, IMF backing, and Fitch’s recent upgrade are “partly cushioning the impact of the global environment.” “If the local fundamentals keep improving, country risk can continue to compress even in a less favorable external environment,” she concluded.