A Dollar Bazooka for Argentina

Weekly Global Market Snapshot

US Treasury Secretary Scott Bessent appeared to throw Argentina’s under-pressure President Javier Milei a lifeline this week with a commitment "to do what is needed" to support Latin America’s third-largest economy.

Bessent’s comment  came after weeks of turmoil following a heavy defeat for Milei’s coalition party, La Libertad Avanza, in local elections on September 7, which, coupled with a corruption scandal involving a senior government advisor, have called into question the libertarian leader’s ability to drive through long-promised free-market reforms.

The local election defeat spooked investors and sparked a sell-off in Argentinian debt and equities. Prior to Bessent’s intervention, the value of the peso hit a record low. In response, the country’s central bank, spent more than US $1 billion of its scarce foreign reserves propping up the country’s currency.

On Monday, following his message of support, Bessent announced negotiations over a US $20 billion currency swap line with Argentina’s central bank, adding that the US government was prepared to buy Argentinian dollar-denominated bonds in the secondary market. The news calmed investors’ fears, with the peso rebounding 6% and yields on Argentinian dollar debt falling back to 3.7% on the day.

For Jason DeVito, Senior Portfolio Manager for Emerging Market Debt at Federated Hermes, the key question is how far US support will go and whether other institutions will join with the US to shore up Argentina’s economy.

“Further support, whether direct or via institutions like the IMF, could be pivotal,” he says. “It’s not just about liquidity. It’s about restoring confidence. Stabilizing inflation, preserving reserves, and enabling legislative reforms are all critical to attracting foreign investment. Argentina’s economic fundamentals, especially in energy, tech, and agriculture remain strong. But October’s legislative elections are also a key inflection point. A poor outcome could complicate reform efforts, though broad public appetite for change may still carry momentum. With credible US backing, Argentina has a real chance to shift from fragility to resilience.”

DeVito highlights how the wording of Bessent’s message echoed that of then-ECB governor Mario Draghi during the eurozone crisis that the central bank would do “whatever it takes” to prevent the euro from failing. “This time, for Argentina, it seems to have helped calm fears of a full-blown FX crisis,” says DeVito. “The US appears to view Argentina as a strategic partner, and an opportunity to champion democratic reform and market liberalization in South America.”

Read More From Federated Hermes

DISCLOSURES
Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Prices of emerging market securities can be significantly more volatile than the prices of securities in developed countries, and currency risk and political risks are accentuated in emerging markets.

The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Past performance is not a reliable indicator of future results.

This is a marketing communication. The views and opinions contained herein are as of the date indicated above, are those of author(s) noted above, and may not necessarily represent views expressed or reflected in other communications, strategies or products. These views are as of the date indicated above and are subject to change based on market conditions and other factors. The information herein is believed to be reliable, but Federated Hermes and its subsidiaries do not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. This document has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient.

This document is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities, related financial instruments or advisory services. Figures, unless otherwise indicated, are sourced from Federated Hermes. Federated Hermes has attempted to ensure the accuracy of the data it is reporting, however, it makes no representations or warranties, expressed or implied, as to the accuracy or completeness of the information reported. The data contained in this document is for informational purposes only, and should not be relied upon to make investment decisions.

Federated Hermes shall not be liable for any loss or damage resulting from the use of any information contained on this document. This document is not investment research and is available to any investment firm wishing to receive it. The distribution of the information contained in this document in certain jurisdictions may be restricted and, accordingly, persons into whose possession this document comes are required to make themselves aware of and to observe such restrictions.

United Kingdom: For Professional investors only. Distributed in the UK by Hermes Investment Management Limited (“HIML”) which is authorised and regulated by the Financial Conduct Authority. Registered address: Sixth Floor, 150 Cheapside, London EC2V 6ET. HIML is also a registered investment adviser with the United States Securities and Exchange Commission (“SEC”).

European Union: For Professional investors only. Distributed in the EU by Hermes Fund Managers Ireland Limited which is authorised and regulated by the Central Bank of Ireland. Registered address: 7/8 Upper Mount Street, Dublin 2, Ireland, DO2 FT59.

Australia: This document is for Wholesale Investors only. Distributed by Federated Investors Australia Services Ltd. ACN 161 230 637 (FIAS). HIML does not hold an Australian financial services licence (AFS licence) under the Corporations Act 2001 (Cth) ("Corporations Act"). HIML operates under the relevant class order relief from the Australian Securities and Investments Commission (ASIC) while FIAS holds an AFS licence (Licence Number - 433831).

Japan: This document is for Professional Investors only. Distributed in Japan by Federated Hermes Japan Ltd which is registered as a Financial Instruments Business Operator in Japan (Registration Number: Director General of the Kanto Local Finance Bureau (Kinsho) No. 3327), and conducting the Investment Advisory and Agency Business as defined in Article 28 (3) of the Financial Instruments and Exchange Act (“FIEA”).

Singapore: This document is for Accredited and Institutional Investors only. Distributed in Singapore by Hermes GPE (Singapore) Pte. Ltd (“HGPE Singapore”). HGPE Singapore is regulated by the Monetary Authority of Singapore.

United States: This information is being provided by Federated Hermes, Inc., Federated Advisory Services Company, Federated Equity Management Company of Pennsylvania, and Federated Investment Management Company, at address 1001 Liberty Avenue, Pittsburgh, PA 15222-3779, Federated Global Investment Management Corp. at address 101 Park Avenue, Suite 4100, New York, New York 10178-0002, and MDT Advisers at address 125 High Street Oliver Street Tower, 21st Floor Boston, Massachusetts 02110.

Hermes Investment Management Limited.

3412803244