By Jorge Otaola

BUENOS AIRES (Reuters)

Argentina’s country risk index, a key indicator of investor sentiment regarding public debt, closed slightly lower on Tuesday after a surprising drop earlier in the day.

The J.P. Morgan risk benchmark, which reflects the yield spread on Argentine sovereign bonds against comparable U.S. debt, ended at 561 points after dropping to 444 points — its lowest since 2018.

Despite Argentina’s significant liabilities, recent market reactions have been positive due to decreasing inflation rates and initial signs of economic recovery following years of recession.

Traders noted that the index dip was influenced by technical issues related to impending bond payments scheduled for later this week.

On Thursday, Argentina is poised to pay $4.3 billion in principal and interest on its “Bonares” and “Globales” bonds.

Earlier, Felipe Nunez, an economist at Argentina’s Treasury, indicated on social media that the index reflected a price discrepancy stemming from bond coupon payments and amortization.

Argentina’s country risk has been on a decline owing to improved optimism within financial markets. The index fell below 600 points on Monday.

The decrease in country risk is seen as a sign of growing confidence under President Javier Milei, who began his term in late 2023, implementing a cost-cutting program aimed at curbing high inflation and government expenditures.

Nicolas Merino from ABC Mercados de Cambio attributed the drop in risk partly to Argentina’s trade balance, which achieved its twelfth consecutive month of surplus in November.

He also highlighted the recovery of foreign reserves, the anticipation of a new debt agreement with the International Monetary Fund, and a recent $1 billion loan agreement with five foreign banks.

(By Jorge Otaola and Hernan Nessi in Buenos Aires; Writing by Brendan O’Boyle; Editing by Kylie Madry, Matthew Lewis and Rod Nickel)