Azernews.Az

Argentina has secured most of the funds needed for its upcoming $4.2 billion sovereign bond payment without returning to international debt markets, opting instead for lower-cost financing through domestic and multilateral sources, according to Bloomberg, AzerNEWS reports.

The South American country has already accumulated around $3.6 billion, or approximately 85% of the amount due on July 9, in deposits held by the Ministry of Economy. The remaining funds are expected to come from the issuance of dollar-denominated bonds in the domestic market, purchases by the Central Bank, and financing backed by international financial institutions.

Rather than issuing new bonds on Wall Street at an estimated yield of around 10%, President Javier Milei's administration raised financing through alternative channels at an average cost of 6.7%, significantly reducing borrowing expenses.

A decree approved earlier this week authorizes Argentina to raise up to $5 billion through financing operations guaranteed by the World Bank and the Inter-American Development Bank. Economy Minister Luis Caputo estimates that this funding could carry an interest rate of around 6%.

Analysts say the strategy helped Argentina avoid costly borrowing while taking advantage of improving market conditions.

Pilar Tavella, head of sovereign debt at Balanz Capital, noted that the plan was not without risks.

"If U.S. Treasury yields had risen sharply or the war involving Iran had escalated, this strategy could have failed," she said.

Investor sentiment toward Argentina has improved in recent months following sovereign credit rating upgrades by Fitch in May and S&P in June. As a result, the country's risk premium has fallen to around 430 basis points, roughly 100 basis points lower than just a few months ago.

According to Federico Filippini, head of research at AdCap Financial Group in Buenos Aires, Argentine government bond yields are approaching levels that could support a return to international capital markets.

"With yields on Argentine government bonds governed by New York law already around 9%, the possibility of a new offshore bond issuance is becoming increasingly realistic," he said.

In addition to multilateral financing, the government has also tapped domestic investors by issuing dollar-denominated bonds maturing in 2027 and 2028. At the same time, authorities have raised peso-denominated financing through domestic debt auctions to cover local expenditures, allowing available dollar reserves to be preserved for external debt obligations.

Although peso-denominated instruments currently offer annual yields of around 20%, after adjusting for inflation the real interest rate is estimated at approximately 7%.

The financing strategy is expected to save Argentina hundreds of millions of dollars in borrowing costs while providing additional time for conditions in international debt markets to improve before seeking new external financing.