(Bloomberg) — Argentina’s central bank unveiled a deal Friday with five international lenders on a $1 billion repurchase agreement that would help replenish the central bank’s foreign reserves.
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The deal, commonly known as a repo, will be in place for two years and four months, according to the monetary authority, which didn’t disclose which banks participated in an auction on Dec. 27, saying only that they’re “first line.” Bloomberg News reported in October that officials were negotiating a financing line with Banco Santander SA and JPMorgan Chase & Co.
Argentina’s sovereign bonds resumed an earlier climb after Friday’s announcement. Benchmark notes due in 2035 touched a session high, last changing hands at 68.7 cents on the dollar, according to pricing data compiled by Bloomberg.
Argentina’s central bank said it received offers for $2.85 billion, and that it would pay the secure overnight financing rate plus a spread of 4.75% on the repo line.
A senior government official told Bloomberg News earlier Friday that the repo would be intended to pay Argentina’s bondholders in July given the monetary authority already has the money it needs to make January debt payments.
The repo marks a vote of confidence from Wall Street more than one year after President Javier Milei took office. Argentina’s economy is beginning to recover from a harsh recession that was exacerbated by the libertarian’s fiscal austerity, while his administration continues to crush inflation and keep the peso relatively stable. Milei remains Argentina’s most popular politician.
Another sign of market optimism in Milei is Argentina’s rapidly declining sovereign risk, the difference in yield between its sovereign bonds and benchmark US Treasury notes. Sovereign risk for the South American country plunged to 606 basis points by Thursday, down from more than 1,000 in late October.
Repos are commonly used to raise short-term capital. In the US, the Federal Reserve turns to the repo market as a tool to help implement monetary policy. In Argentina, the administration of former President Mauricio Macri took on repo loans with international banks to raise billions of dollars.
The repo negotiations have run parallel to government’s talks with the International Monetary Fund for a new program to succeed the country’s $44 billion deal. Milei and Economy Minister Luis Caputo have said they expect to reach a deal with the IMF within the first four months of this year and that it could include fresh funding that goes beyond the previous program’s financing.
