EMBI - Argentina

EMBI — strong compression from extreme stress, but sovereign risk remains elevated

Argentina’s EMBI remains one of the clearest market-based gauges of sovereign credibility, summarizing investor perceptions regarding debt sustainability, macroeconomic consistency, reserve adequacy, and the broader political capacity to sustain stabilization efforts.

Extreme stress phase

The series shows extraordinarily high levels of country risk between 2020 and 2023, with peaks above 3,800 basis points in March 2020 amid the global pandemic shock and Argentina’s debt restructuring process. From September 2020 onward, a temporary easing is observed, but the EMBI remains persistently above 1,300–2,500 basis points, signaling structural distrust regarding debt sustainability and the country’s macroeconomic framework.

Between 2021 and 2023, the index reflects a further deterioration in market confidence. Electoral uncertainty, rising inflation, a wide exchange-rate gap, and tensions with the IMF pushed risk levels above 2,500–2,800 basis points, particularly during the historic 2023 drought and the weakening of international reserves.

Sharp compression in 2024

The most significant shift occurs in 2024, when the EMBI begins a sustained decline from levels close to 1,900 basis points to below 800 basis points by the end of the year. This compression reflects a combination of aggressive fiscal consolidation, a sharp reduction in monetary issuance, partial reserve rebuilding, and improved expectations of macroeconomic normalization under a new policy regime.

This move marked a major break from the previous “permanent distress” regime and suggested that investors had begun to price a non-trivial probability of sustained stabilization. Even so, the decline in spreads did not imply a transition to normal sovereign risk conditions, but rather a move from extreme dislocation toward a still-fragile intermediate zone.

Volatility and reassessment in 2025

In 2025, the downward trend initially continues, with readings approaching 630–720 basis points, levels not seen since 2017–2018. However, the sharp spike to 1,220 basis points in September 2025 points to a correction to the initial wave of optimism.

That reassessment suggests that, although macro stabilization has improved, markets continue to price lingering vulnerabilities: exchange-rate misalignment, uncertainty over the social and political sustainability of adjustment, and delays in key structural reforms.

Structural interpretation

From a structural standpoint, Argentina appears to have exited the classic “permanent default” range commonly associated with EMBI readings above 2,000. But it remains far from the group of more stable emerging sovereigns, typically associated with spreads below 400 basis points.

The overall trend is one of improvement, but volatility episodes continue to underscore the fragility of the process. In practical terms, sovereign spread compression will likely require not only continued fiscal discipline and monetary restraint, but also a stronger institutional perception of policy durability.

Conclusion

Argentina’s EMBI has improved substantially from the extreme stress levels observed in 2020–2023, indicating a meaningful recovery in investor sentiment.

Still, the country continues to trade with a large credibility premium. The key challenge ahead is to convert cyclical improvement into durable confidence — something that will depend on sustained fiscal adjustment, monetary coherence, reserve rebuilding, and the political capacity to preserve the stabilization regime over time.