2024 was an exceptional year for bonuses Argentine sovereigns, surprising even the most optimistic investors.
Let’s look at the AL30 graph:
Counting the amortization of July of this year, it rose 300% since April of last year and 200% since Milei won. This stellar performance is framed in a context of significant economic and political changes, with the focus on solving the fiscal deficit.
The other side of the same coin is what is happening with the Country Risk:
It is already below 650 points. Let us remember that a year ago it was at 1850 points. And why is it important? Because it is a demonstration of trust in the government. It is probably the purest indicator to follow, since it is people voting with their pocketbooks and trusting the north of the country.
However, after this remarkable bond rally, the crucial question arises: What can we expect for 2025?
It is important to have realistic expectations. The bonds, which once yielded more than 50% IRR under the previous government, now yield around 11%. That the IRR (Internal Rate of Return) of bonds has dropped from 50% to 11% means that the market perceives much less risk in investing in those bonds now than before.
And now that Argentine bonds are much more “safe”, the potential returns are also lower. That is, the possible upward path is increasingly limited. Because? Unlike stocks, bonds have a “ceiling.” What does it mean? That bonds cannot rise indefinitely. The more they rise, the closer they get to their par value and, therefore, the performance decreases.
So, Is there any way left for them to continue climbing? Yes of course. There is still room, since the country’s risk remains at “high” levels, despite the enormous drop it has had. In this context, it is worth clarifying that long bonds have greater potential than short ones.
Let us also remember that in January there are payments of principal and interest, around US$4.4 billion, approximately. If that money is reinvested, it could further boost the price of bonds, improving Country Risk.
In a positive scenario in 2025 (inflation and exchange rate gap contained, favorable electoral results and a smooth exit from the stocks), Argentina could have a Country Risk of 400 points, generating returns of between 10% and 20% on its bonds.
In conclusionAlthough 2024 was an exceptional year for Argentine bonds, 2025 presents positive prospects, although with tighter returns. Fortunately, the country is normalizing and opportunities in its assets are still available.
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Note: The material contained in this note should NOT be interpreted under any circumstances as investment advice or a recommendation to buy or sell a particular asset. This content is for educational purposes only and represents the opinion of the author only. In all cases it is advisable to seek advice from a professional before investing.
Source: Ambito
