Argentina's President Javier Milei speaks during a ceremony marking the 171st Anniversary of the Buenos Aires Stock Exchange, in Buenos Aires, Argentina, July 10, 2025. REUTERS/Mariana Nedelcu
Argentina's President Javier Milei gestures after the La Libertad Avanza party won the midterm election, which is seen as crucial for Milei's administration after U.S. President Donald Trump warned that future support for Argentina would depend on Milei's party performing well in the vote, in Buenos Aires, Argentina, October 26, 2025. REUTERS/Cristina Sille

By Rodrigo Campos

NEW YORK (Reuters) -Argentina's bonds and stocks are expected to rally on Monday after President Javier Milei's party won an overwhelming victory in a crucial midterm election, a key requisite to keep economic reforms on track and a U.S. financial backstop in place.

Official results in Argentina's Sunday legislative elections show voters strongly backed Milei's free-market reforms and deep austerity measures, with inflation falling sharply since he took office nearly two years ago.

The president's party, La Libertad Avanza, received 41.5% of the vote in Buenos Aires province compared with 40.8% for the Peronist coalition, according to official results. The province has long been a political stronghold for the Peronists, marking a dramatic political shift.

The results could clear the way for Milei to enact faster reforms and reinvigorate his mandate to push ahead with one of the most ambitious economic overhauls in the cash-strapped and inflation-ridden country's recent history.

"It’s reasonable to expect that we could see an 'everything rally,'" said Brian Jacobsen, chief economist at Annex Wealth Management, adding that he expected Argentina's dollar bonds to test the record highs that were set earlier this year.

"This election result keeps the country in the 'nice' column of President Trump’s 'naughty and nice' list. The bulls can charge ahead."

At the top of investors' minds is a pledge of support from Washington of Milei's agenda through a $20 billion central bank swap line and a potential $20 billion loan facility that could be used to purchase Argentine debt.

Argentina's bonds and stocks and the embattled peso have been on a rollercoaster ride since Milei's party suffered a wider-than-expected defeat in a provincial vote in Buenos Aires early last month.

"Up until now, Milei had mostly governed by executive order," said Benjamin Gedan, senior fellow and director of the Latin America Program at the Stimson Center. "That gave investors little reason to believe his policies would not be quickly reversed by a Peronist down the road."

"Now, Milei has a shot at tackling the deep structural dysfunction that long clipped Argentina’s wings, including its tax and pension systems and labor code. It could still be a hard slog, unless the economy turns around quickly. But at least he’ll have a chance.”

The peso has weakened some 25% since mid-April's partial scrapping of foreign exchange controls, and close to 30% since the start of the year.

It strengthened more than 10% to the dollar in the week after U.S. Treasury Secretary Scott Bessent first announced U.S. support for the Argentine economy in late September, but has since weakened again. On Friday, it posted a record closing low of 1,491.50 per dollar.

Argentina's international dollar bonds are among the worst-performing emerging market high-yielders this year, down nearly 10% year-to-date. They had returned more than 100% to investors last year.

The local stock benchmark last month touched its lowest in a year. While it has since risen more than 20%, it is down nearly 30% from a record high set in January.

A stronger position for Milei's party in the legislature will encourage more investment, investors have said, as electoral risk is now receding until the next general ballot in 2027.

"From a financial markets perspective, this electoral outcome was far from priced in," said Alejo Czerwonko, CIO for emerging markets Americas at UBS Global Wealth Management. "With this result, Argentine risk assets should now benefit from greater political stability, a renewed push for pro-market reforms and robust support from the U.S."

The peso was also expected to rise on Monday following the midterm election result, though some investors still expect a reform to the foreign exchange framework that would encourage the accumulation of reserves, with a wider band or a free float of the peso among the options.

"This evening’s unexpectedly strong performance for Milei’s La Libertad Avanza should see the peso rally when spot markets reopen and smooth the way for more comprehensive economic reforms in the months ahead," said Karl Schamotta, chief market strategist at Corpay.

The currency has been allowed to float in a widening band since an agreement with the International Monetary Fund for a $20 billion loan program in mid-April. Argentine Finance Minister Luis Caputo stood firmly by the current band in the weeks ahead of the election but the peso has come under increasing pressure, despite market interventions from both the U.S. and the Argentine treasuries.

(Reporting by Rodrigo Campos; Additional reporting by Saqib Iqbal Ahmed; Editing by Rosalba O'Brien, Edmund Klamann and Thomas Derpinghaus)