(Bloomberg) -- Argentine bonds rallied Wednesday morning after President Mauricio Macri kickstarted his re-election bid with a surprise running mate that shakes up the nation’s political alliances before the October vote.
Macri chose Senator Miguel Pichetto, one of his critics and a moderate opposition leader, to be his vice presidential candidate. The move boosts Macri’s odds of winning, but analysts say it’s also an admission that he needed to broaden his coalition beyond its base.
The spread in yield between Argentine bonds and U.S. Treasuries fell 54 basis points by Wednesday morning. Sovereign risk dropped to its lowest level since April. Argentina’s bond maturing in 2028 rose 1% to 74.6 cents on the dollar.
“This is a very important change,” said Sergio Berensztein, an Argentine political analyst. “It opens up the opportunity for other moderates,” to support Macri.
The move further fragments Argentina’s broad political movement, known as Peronism, between Macri and former President Cristina Fernandez de Kirchner, who is running as a vice presidential candidate on a ticket with another moderate Peronist leader, Alberto Fernandez. Polls show Macri and Kirchner’s tickets essentially in a dead heat.
Macri’s pick represents “a response to the former president’s decision,” says Lucas Romero, director of polling firm Synopsis in Buenos Aires. “The only way to amplify the ticket -- bring it toward the center -- was to incorporate a Peronist.”
Choosing Pichetto also ends much speculation about Macri’s No. 2 at a time when he needs to boost his popularity with the economy in recession. Argentines are suffering under 56% inflation, elevated unemployment and the world’s highest interest rates.
Macri’s current vice president, Gabriela Michetti, was long expected to leave at year-end. The move came a day before parties must formally register for the election, a date the market was anticipating to see how moderate Peronists would align.
Investors saw Macri’s decision as a positive for his re-election bid because it helps broaden the appeal of his candidacy and may make it easier for him to govern with a Peronist leader by his side.
“It was a masterful decision,” said Walter Stoeppelwerth, chief investment officer at Portfolio Peronsal Inversores in Buenos Aires. “They’ve been able to prove to the market convincingly that they’re willing to reach out to Peronism” to win the election.
‘Two-Horse Race’
Pichetto, 68, has been a senator since 2001, and a mainstay Peronist in Argentine politics since the 1980s. His decision to run with Macri completes a political reversal: Pichetto was a long-time backer of Kirchner, but he distanced himself from her after her party lost in the 2015 presidential election.
Earlier this year, Pichetto co-founded a third coalition called Federal Alternative, which represented Peronists not aligned with Kirchner. He tried to rally support behind candidate Roberto Lavagna, but his campaign has sputtered in recent weeks as he failed to distinguish his platform. In backing Lavagna, Pichetto even criticized Macri’s handling of the economy in an April interview with Bloomberg.
With Macri and Kirchner now running with moderates, they’ve taken away much of the momentum from any third-party contenders.
“It has the possibility of reshaping the election race by turning what was a three-horse race into a two-horse race,” said Patrick Esteruelas, a senior analyst at Emso Asset Management in New York.
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