Venezuela’s dollar-denominated bonds fell for a second day after President Hugo Chavez died and his deputy stepped in to run the country, South America’s biggest oil exporter. The cost of protecting its debt against non-payment rose.
The yield on the $4 billion of notes maturing in 2027 rose to the highest since Jan. 22 after Vice President Nicolas Maduro announced on state television that Chavez died at a military hospital in Caracas and urged Venezuelans to refrain from violence. Maduro will be interim president, Foreign Minister Elias Jaua said yesterday, pending an election.
Chavez, a self-declared socialist, transformed Venezuela by channeling record oil revenue to the poor, nationalizing corporations and vilifying foes as U.S. imperialist puppets, a left-wing political ideology also known as Chavismo. He died at the age of 58. Under Venezuela’s constitution, an election must be held within 30 days.
“The market may be worried about the political tension going into the election and how the new Chavismo will shape up without its historical leader,” said Emanuele Del Monte, who helps manage $2.7 billion of bonds at Fideuram Asset Management in Dublin, including Venezuela debt. “Bond investors have been positive in anticipation of this event. This is an important moment for the country and could represent a major opportunity for change.”
The yield on 9.25 percent bonds due in September 2027 climbed 21 basis points, or 0.21 percentage point, to 9.20 percent as of 1:36 p.m in New York, after rising nine basis points yesterday, according to data compiled by Bloomberg. Five-year credit-default swaps rose 35 basis points to 676 basis points today.
“The market will now focus on the election,” David Rolley, who as vice president of the global fixed-income group at Loomis Sayles & Co. co-manages $36 billion, said in an interview yesterday. “We don’t know if there’ll be policy continuity. While this is a dramatic moment, it was not necessarily a surprising moment.”
The South American country has $36 billion of dollar bonds outstanding with maturities of up to 2038, and 1 billion euros ($1.3 billion) of debt due in 2015, according to data compiled by Bloomberg.
Venezuela’s notes rallied 28 percent in the past year, more than the 11 percent average return for emerging-market sovereign bonds tracked by JPMorgan Chase & Co.’s EMBI Global index, as the deterioration of Chavez’s health fueled speculation that a new government may unwind policies that pushed up inflation and repelled foreign investors.
The yield on Petroleos de Venezuela SA’s securities due in 2022 climbed 25 basis points to a one-month high of 10.30 percent. They were the most-actively traded securities by volume today, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
Chavez traveled to Cuba in December to undergo his fourth cancer operation, two months after winning re-election. It was the last time he would be seen in public. Half of the citizens would vote for Maduro in a new election, the Correo Del Orinoco newspaper reported on Feb. 18, citing a Hiterlaces poll.
“Market expectations are already braced for a transition scenario without undue expectations that the opposition can come to power in the near term,” Ben Ramsey, an analyst at JPMorgan Chase & Co. in New York, wrote in an e-mailed note today. “Volatility around upcoming events, though possible, should be limited.”
In an hour-long televised speech yesterday, Maduro called for an investigation into a theory that Chavez’s enemies infected him with cancer, after the government expelled two U.S. officials over the alleged plot.
“From the latest Maduro speech, it doesn’t bode well” for the market, Fideuram’s Del Monte said. “Although we are witnessing the end of an era that has been problematic in the eyes of most investors, the political landscape is far from clear.”
Maduro will take over as interim president until elections are organized within 30 days, Minister Jaua said last night. Chavez tapped Maduro in his final public speech on Dec. 8 to represent his government in that vote.
“It is not clear at this stage if the government will strictly follow all of the steps detailed in the country’s constitution,” Barclays Plc analysts Alejandro Grisanti and Alejandro Arreaza wrote in a report. “As events unfold we will expect a big increase in volatility in the market in the next few days.”