Can the country risk drop to 350 points? The fundamentals behind this possibility

Country risk continues to be one of the main indicators used by markets to measure the perception of Argentina's financial solvency. Beyond the daily movements of sovereign bonds, this indicator summarizes the evaluation that investors make regarding the country's ability to meet its financial commitments, the consistency of its macroeconomic program, and the availability of foreign currency to face future obligations. In this context, one of the questions that is beginning to gain traction is whether country risk could approach the 350 basis points zone again in the coming months, after finishing July around 430 points.

The possibility of an additional reduction in the sovereign spread finds some objective foundations. Firstly, the simultaneous maintenance of fiscal and trade surpluses constitutes a signal that markets tend to incorporate positively into their risk models. The balance of public accounts reduces the Treasury's financing needs, while a positive trade balance helps sustain foreign currency inflows. None of these factors alone guarantees a decrease in country risk, but both reduce some of the imbalances that creditors have historically observed.

Another relevant aspect is the evolution of international reserves. Net reserves are already above $10 billion, and gross reserves are approaching $50 billion. Meanwhile, until July, the Central Bank accumulated foreign currency purchases of $13.327 billion. Beyond the specific level of reserves, the market tends to pay attention to the trend presented by these indicators, as a greater accumulation capacity strengthens the country's external position and improves the perception of its ability to meet commitments in foreign currency.

The evolution of country risk also does not depend exclusively on domestic variables. U.S. interest rates, global appetite for emerging market assets, and the availability of international financing continue to be determining factors. Even with internal macroeconomic improvements, a less favorable international context can limit the speed at which the sovereign spread decreases. Likewise, the market will continue to monitor the continuity of fiscal balance, inflation dynamics, exchange rate evolution, and reserve consolidation during the second half of the year.

Even considering these conditions, a convergence towards the 350 basis points zone appears to be a technically possible scenario if the main macroeconomic variables maintain the observed trend in the coming months. It would not imply a complete normalization of Argentine risk, but rather a gradual compression of the premium demanded by investors as some of the uncertainties currently incorporated by the market in the valuation of sovereign debt decrease.

A reduction close to 80 basis points would also have a direct impact on bond prices. The inverse relationship between yield and price means that a lower rate demanded by investors translates into an appreciation of public securities, especially those with longer durations, which are more sensitive to changes in the sovereign's financing cost.

Sensitivity estimates show that the largest movements would concentrate in the long end of the curve. Under a country risk scenario close to 350 points, the AL41 could register an appreciation of around 5.4% in dollars, followed by the AL35 with 5.3%, the GD46 with 5.1%, the GD41 with 4.8%, and both the AE38 and GD35 with a potential around 4.6%. These variations do not respond to a change in the flows that pay the bonds, but to the effect generated by a lower discount rate on assets with longer maturities.

Naturally, this is a conditioned scenario. The continuity of the process will depend on the main macroeconomic variables maintaining a consistent evolution and on the international financial context not deteriorating the appetite for emerging debt. However, from a strictly financial perspective, the hypothesis of a country risk around 350 basis points can no longer be dismissed as a low-probability scenario, but rather as a possibility that is beginning to find support in the recent evolution of several indicators that the market closely monitors.