Argentina’s Merval Snaps Losing Streak, But Bond Drop Pushes Country Risk to Two-Month High

Merval Rebounds While Bonds Fall and Country Risk Hits June High

Argentina’s benchmark S&P Merval stock index closed 1.1% higher at 3,122,065 points on Monday, breaking a six-session losing streak. The bounce came against a mixed global session: Wall Street’s Nasdaq dipped 0.3% and crude oil prices spiked nearly 5% on geopolitical tensions.

The gains were not shared by the country’s sovereign dollar bonds, however. Bonares and Globales fell an average of 0.7%, pushing the J.P. Morgan EMBI spread – a widely followed gauge of Argentine country risk – up 13 basis points to 465 basis points, the highest closing level since 10 June.

Among Argentine ADRs trading in New York, Bioceres rose 4%, Vista Energy added 3.5% and Globant gained 2.8%, with more advancers than decliners overall. Analysts at Cohen Aliados Financieros noted that sovereign bonds corrected, country risk again topped 450 basis points and peso rates remained under stress while economic activity has yet to consolidate its recovery. Portfolio Personal Inversiones attributed the equity rebound to a weaker dollar and a compression in US Treasury yields, which reduced dollar funding costs for emerging markets.

Why Argentine Bonds Are Struggling Despite a Dovish Global Backdrop

The Divergence Between Stocks and Bonds

Argentina’s equity market took its cue from global risk appetite, helped by signs that the US Federal Reserve may slow its rate hikes after a cooling labor market. Lower Treasury yields and a softer dollar made EM carry trades more attractive, lifting the Merval. Yet the country’s dollar bonds sold off, sending country risk higher. That suggests bond investors are focused on domestic vulnerabilities – stubborn inflation, a fragile economic recovery and stressed peso money markets – rather than the global tailwind. The rise in country risk to 465 bps also reflects lingering doubts about the government’s ability to stabilise its external finances and regain access to international capital markets.

Oil’s Renewed Spike Raises the Stakes

The 5% jump in Brent crude to $87.58 a barrel stemmed from Iran’s insistence that the United States must meet several demands before the Strait of Hormuz – a critical chokepoint – can be reopened. Attacks on Saudi infrastructure by Iran-aligned Houthis added to supply fears. For Argentina, a sustained rise in oil prices could widen the country’s trade deficit and increase the cost of fuel subsidies, putting additional strain on public finances. While the Vaca Muerta shale formation offers the potential for energy self-sufficiency, the immediate impact of higher oil prices is a headwind for the macro adjustment effort.

Can the Equity Rally Hold?

The Merval’s rebound, while welcome, is fragile. The index remains well below its recent highs, and the broader picture of stressed local rates and weak activity – flagged by Cohen Aliados – limits the upside. Portfolio Personal noted that the global combo of a weaker dollar and lower Treasury rates is favourable for emerging market assets, but the lack of a domestic growth catalyst could reverse the gains if the Fed’s stance shifts or geopolitical risks escalate further.

Signposts for Investors as Argentina’s Asset Divergence Deepens

Monitor the EMBI spread: The jump to 465 bps is the highest since early June. A move through the 500-basis-point threshold – a level that often triggers forced selling by benchmark-constrained EM debt funds – could accelerate outflows from Argentine bonds.

Track the oil price: Brent at $87.58 is up nearly 5% in a single session. If tensions over Hormuz persist and push prices toward $90+, Argentina’s energy import bill and domestic fuel costs will climb, adding to inflation and fiscal pressure.

Follow the ADR leaders: Bioceres (+4%), Vista Energy (+3.5%) and Globant (+2.8%) rallied on global risk-on flows. Their performance can serve as a gauge of external appetite for Argentine risk – a sharp reversal in these names would signal that confidence is fading.

Watch domestic activity data: Analysts warned that economic activity has yet to consolidate its recovery. Upcoming monthly GDP proxies will be crucial in judging whether the Merval’s gains are backed by fundamentals or merely a short-lived bounce on global liquidity.