Venezuelan bonds tumbled, sending yields to a 22-month high, after President Nicolas Maduro dispatched the military to take over a retail chain as part of his effort to quell inflation that’s soared above 50 percent.
The country’s benchmark bonds due 2027 fell 3.9 cents to 72.1 cents on the dollar as Maduro’s seizure of electronics retailer Daka and his warnings to other businesses to cut prices to “fair” levels deepened investor concern that growth is being choked off by government controls. Yields on the bonds soared 0.79 percentage point to 13.82 percent, the highest since January 2012, at 3:19 p.m. in New York.
Maduro, who took over as president this year after his socialist mentor Hugo Chavez died of cancer, is stiffening government-imposed price controls that have contributed to food and goods shortages across the South American country. Maduro blamed the “parasitic bourgeoisie” and said he’d impose limits on profit margins throughout the economy after inflation surged to 54 percent in October, the fastest pace in 16 years.
“In the 20 years that I’ve been managing emerging markets, I have never seen the mismanagement of the scale that I’m seeing in Venezuela today,” Ray Zucaro, who oversees $375 million of emerging-market debt at SW Asset Management LLC in Newport Beach, California, wrote in an e-mailed response to questions. “The government effectively is promoting anarchy. This disconnect with reality, I’ve never seen it bigger than it is now.”
State oil company Petroleos de Venezuela SA will sell $4.5 billion of bonds this week, Venezuela Oil Minister Rafael Ramirez told reporters today in Caracas. It would be the first sale by PDVSA since May 2012, and could help alleviate a shortage of dollars in the economy that has added to the inflation surge.
The extra yield investors demand to own Venezuelan bonds over U.S. Treasuries soared 0.75 percentage point to 1,190 basis points, the highest in emerging markets, according to JPMorgan Chase & Co.’s EMBI Global Diversified index.
Ben Ramsey, an economist at JPMorgan, lowered his recommendation for Venezuelan bonds to neutral from overweight, according to a report today. Declining oil prices may require a bigger economic adjustment by Maduro after municipal elections Dec. 8, he wrote.
It “is questionable that a government that has doubled down on fiscal largesse and price controls in the month ahead of the election will actually be inclined to deliver the needed adjustment,” wrote Ramsey.
Maduro ordered the military on Nov. 8 to enforce an order that the Daka chain reduce its prices to October levels, accusing the store of overcharging customers by as much as 1,200 percent. He said the government will review prices charged in other stores.
Shoppers were lining up outside electronics stores in Caracas today seeking discounted appliances before Christmas. In a televised address, Maduro urged them not loot the stores, saying he trusts “the spiritual forces of love and peace of the Venezuelan people.”
Maduro’s approval rating fell 6 percentage points in September to 41 percent ahead of the local elections, Barclays Plc said in report today, citing a Datanalisis poll. The survey found 72 percent of Venezuelans perceive the country’s situation as being negative, compared with about 52 percent when Maduro was elected in April.
Venezuela’s inflation rate has more than doubled since the beginning of the year as a shortage of dollars crimp imports in a country that buys 70 percent of its goods abroad. The scarcity index that measures the amount of goods out of stock at any given time rose to 22.4 percent in October, the highest level since January 2008, according to the central bank.
The government, which devalued the bolivar by 32 percent in February to 6.3 per dollar, has been unable to stem the currency’s decline on the black market, where companies and individuals not authorized to use the official rate pay about 60 bolivars per dollar.
Chief price regulator Eduardo Saman said Nov. 9 on state television that it’s illegal for stores to raise prices on existing inventory. The government has set prices for everything from medical services to flour.
“I won’t accept the closing of stores; if a store is shut, it will be transferred to the employees,” Maduro said in a televised national address Nov. 9. “This is just the start of what I’m going to do to protect the Venezuelan people.”
National Assembly President Diosdado Cabello, speaking on state television yesterday, said that Congress this week should approve a law to give Maduro special decree powers.
The state oil company seized about $1 million worth of equipment from Houston-based Superior Energy Services Inc. last month. Chavez took control of more than 1,000 companies or their assets during his 14 years in office as part of his self-proclaimed socialist revolution.
“The rhetoric and to a certain point the actions are becoming very radical and obviously the market is not going to react positively to that,” Fernando Losada, a Latin America economist at AllianceBernstein LP, said in a telephone interview from New York. “The people who are making the decisions don’t believe in the rules of the market.”