Morgan Stanley sees a 50% odds of bearish outcome after 2027 elections

Morgan Stanley believes Argentine bonds now reflect a 41-52% chance of a negative outcome following the 2027 elections, an increase from a prior estimate of 11-20%. According to the bank's analysts, this stems from the combined probabilities of three possible scenarios - "Policy Continuity," "Muddle Through," and "Default" - for the first payment after the 2027 elections to private bondholders.

With one month after the next president assumes office, $3.8 billion in government bonds will be due. Two-thirds of the adverse scenario is attributed to a "Muddle Through" outcome, indicating severe financial strain while meeting debt payments. The remaining third is attributed to a default, resulting in the January payment being unpaid.

While a favorable scenario assumes policy continuity and continued access to financing, the report questions whether a 50% bearish outcome probability is warranted, suggesting it may be driven by unwinding positions. The sell-off in Argentine bonds has led to a sharp rise in the country's risk premium over recent months. The J.P.

Morgan index, which measures sovereign credit risk, has climbed to 900 basis points, its highest level in a year, up from an eight-year low of around 400 basis points last July. The rise in country risk is attributed to investors perceiving greater uncertainty about policy continuity necessary to sustain debt, despite credit rating agencies having assessed fiscal consolidation and the market considering the ability to refinance debt under adverse conditions.