This JP Morgan indicator measures the rate differential of US Treasury bonds with emerging issues. In Argentina's case, it reflects the disarmament of foreign-under-dollar public securities portfolios, by the growing distrust of investors in the progress of the local economy, hit by the pandemic, high inflation, fiscal deficit and increasing poverty, while negotiations with the International Monetary Fund for a stand-by credit of USD 44 billion are extended.

Five reasons can be identified behind this escalation:

1 - "Sell off global". After recent historical highs, Wall Street indicators went through a marked profit-taking stage this week. Investors decided in the short term to take refuge in cash and there was a noticeable drop in share prices that also hurt emerging assets, such as Argentine bonds.

2 - Good news for the economy, bad for the market. Employment data in the US, among other indicators, suggest a revival, and therefore fears of higher inflation in the future were heightened. Investor demand for a higher rate that remunes investment in US Treasury bonds also impacts emerging debt, considered risky, and US Treasury yields.

Thus, the rate of US 10-year Treasury bonds came to exceed 1.6% annually on Friday, the highest since February 2020, before the pandemic. "A rise in risk-free rates raises the waterline for the rest of the global debt. That is, it increases the cost of financing for countries and companies, regardless of their risk differentials. In other words, bond prices are corrected down to accommodate the new reality," explained Nery Persichini, Head of Strategy at GMA Capital.

3 - Effect "it's us". Beyond the change in the international financial scenario, signs of much weakness that violate asset contributions have persisted in the domestic economy for three years. In fact, the risk of Argentina failed to break the floor of the 1,000 points even in last September, immediately after the successful exchange agreed with private creditors for more than USD 100 billion.

This week, domestic and external factors coincided to raise country risk to new highs since sovereign restructuring

"Bonds trade by parity - an average value of 36 cents - larger than per rate, because the default expectation is 90%, even though in the coming years dollar payments are meager. The deterioration of expectations has its best rapporteur in parities," Persichini said.

The 2030 Global Bond in Foreign Dollars (GD30) is traded this Friday at USD 35, with a price drop of 31% since it started trading on the secondary market on September 10. On average, restructured securities lose 13% so far in 2021, and 30% since September 10 last year.

Without access to international markets, it is difficult to finance a period of sustained growth

4 - Bad political signals. President Alberto Fernández's speech to the Legislative Assembly last Monday was not well received by the market, in particular his decision to push a criminal complaint against the administration of his predecessor, Mauricio Macri, for his policy of indebtedness to the outside world.

"The view that criminal complaint must be done is disproportionate given that there have already been actions in this regard. Judicializing actionsgovernment is not positive," said Eduardo Fracchia, Director of the Economics Area at IAE Business School.

5 - An agreement with the IMF is delayed. Another axis of Fernandez's speech at the opening of regular congressional sessions was that of negotiations under an extended facility agreement with the International Monetary Fund, which is owed about USD 44 billion.

Restructured bonds lose 13% so far in 2021, and 30% since September 10

The head of state said: "We do not want to rush to close the agreement with the IMF, our only rush is to stand up to the production and work of thousands of families who have plunged into poverty." He also said that "the program agreed with the Fund will be sent to the National Congress."

For market analysts, a lack of agreement with the agency will require significant disbursements this year, about $6.1 billion to cope with maturities with the Paris Club and other multilateral authorities, a heavy burden for which the Central Bank's few international reserves will have to be used.

How does rising country risk affect the day-to-day economy?

1 - Lack of funding. Economist Aldo Abram, Director of Freedom and Progress, explained to Infobae that "the more country risk it implies that people have the more hesitation to bring their savings or provide financing for productive investments in the country." He recalled that "in terms of growth and recovery it would be very different to have an economy that is receiving a lot of capital - like other emerging economies - for example to get jobs back for productive investments."

For financial analyst Christian Buteler, "a country risk of 1,500 or one of 1,600, basically, they're telling you the same thing: that the country doesn't have access to credit. Obviously, the higher the rate, the further you are from funding."

"From the business side is where you're going to feel the impact the most, because somehow when you assess what rate a company has to pay, it also takes into account the country risk of the place of residence, since its activities mainly located in that country. So, in a way, it doesn't stop him from accessing credit to companies, but it makes him more important," Buteler told Infobae.

The more country risk, the more you hesitate to bring your savings or provide financing for productive investments (Aldo Abram)

2 - Fears of a new default. Aldo Abram advised "look at it on the other side: every time the bonds go down, the country risk rises and it must be remembered that these bonds are the ones we handed over to creditors in exchange for those they had before the restructuring and who were taken away. These new roles are being negotiated at a price that means that those who buy and sell think that in four years at most Argentina is going to be restructuring its debt with a take-off similar to the one already done."

3 - Expectations of low growth. The low appetite for public securities and a high country risk, which prevents the possibility of new sovereign emissions, not only anticipates scarce financing, but also cuts the horizon of growth.

"We are talking about a country that is going to grow little forward Who is going to invest - whether Argentinian or foreign - in a country that has these prospects? Clearly, from a macroeconomic point of view, it is a problem because no one wants to put money in to produce or offer financing, when, in fact, today we have an international context highly favorable for the enormous liquidity generated by central banks to boost economies by the pandemic," Abram said.

A country with no credit and a significant fiscal deficit needs to finance itsomehow. And if you finance it with emissions, it ends up impacting inflation (Christian Buteler)

"It continues to favour that we are going to export a lot, because hard currencies - including the dollar - have been falling and that has raised the prices of exportable goods sharply in recent months and that will benefit us," added the Director of Freedom and Progress.

4 - Inflationary risk. "The ordinary citizen in what can most impact him is that a country with a major fiscal deficit needs to finance it in some way. And if you finance it with emissions, it ends up impacting inflation," Christian Buteler said.

"The higher the country's risk, there is an impact in terms of inflation, because less financing the state is going to have. And the less financing in the voluntary credit market, the more money you're going to have to ask the Central Bank, making that more issuance and more depreciation of the currency and then the higher the local prices," Aldo Abram agreed.

"Unfortunately, more inflation is more impoverished by Argentines and especially the poorest, who are most affected because most of their savings are in pesos and cannot defend themselves against inflation as easily as those with more money," the economist for Freedom and Progress said.

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