Venezuelan Bonds Tumble as Anti-Maduro Protests Leave Seven Dead
Venezuelan bonds plunged the most in 15 years as seven people died in street protests demanding a vote recount of President-elect Nicolas Maduro’s victory, adding to concern that instability will undermine the economy.
The country’s bonds due in 2027 dropped 6.9 cents to 91.21 cents on the dollar at 4:26 p.m. in New York as Maduro said he will use a “firm hand” to prevent violence and stands ready to radicalize Venezuela’s revolution. The decline was the biggest since August 1998. The yield rose 95 basis points, or 0.95 percentage point, to 10.44 percent, the highest since November.
“What we’re seeing is political chaos and political crisis,” Kathryn Rooney Vera, a strategist at Bulltick Capital Markets, said in a telephone interview from Miami. “The bond market doesn’t like that.”
Maduro, handpicked by Hugo Chavez to succeed him weeks before his March 5 death, pledged to block a march planned by the opposition contesting his April 14 victory over Henrique Capriles Radonski after the public prosecutor said seven people were killed in protests. Capriles urged supporters to take to the streets with him tomorrow to press the electoral council in Caracas to recount all ballots.
Maduro was declared the winner after receiving 50.8 percent of the votes, compared with 49 percent for Capriles. The margin of victory was the narrowest in Venezuela since 1968.
National Assembly President Diosdado Cabello said no recount of the 15 million votes cast would occur and that Maduro will be sworn in April 19.
“The margin wasn’t as wide as we had expected, and now they think the moment has arrived for a coup,” Maduro told reporters yesterday in Caracas. “They are trying to inflame hate and have succeeded with some in the middle class.”
The cost of insuring Venezuela’s debt against default for five years surged 103 basis points to 832 basis points after rising 41 basis points yesterday. The yield on Petroleos de Venezuela SA bonds maturing in 2017 increased 121 basis points to 10.62 percent.
Venezuela has stepped up security at its oil infrastructure sites, Oil Minister Rafael Ramirez said in a national address.
“In light of violence the ultra-right has tried to impose on the country, we declared a yellow alert at all our installations,” Ramirez said.
In 2002, Chavez was overthrown for two days after opposition street protests turned violent in Caracas. A decade earlier, Chavez became a national figure when he led military rebels in a failed coup against President Carlos Andres Perez.
Maduro, a former union leader who served as Chavez’s foreign minister for six years, campaigned on a pledge to extend Chavez’s brand of socialism in South America’s largest oil producer.
Chavez nationalized more than 1,000 companies or their assets, imposed currency controls and used revenue from the state-run oil monopoly to fund spending on health and food for the poor as part of what he called his socialist revolution.
Capriles said he had evidence of irregularities, including videos of voters being watched by Maduro supporters while they cast their ballots, that affected about 300,000 votes.
Hundreds of Capriles supporters marched through eastern Caracas yesterday to gather outside his campaign headquarters, waving flags and blowing horns. On a highway in the capital, National Guard troops fired tear gas and plastic bullets to disperse protesting students.
The selloff this week in Venezuelan bonds is erasing gains posted earlier this month. In March, they lost 2.7 percent, the worst performance in Latin America, according to data compiled by JPMorgan Chase & Co.
“The uncertainty surrounding the vote recount and the violent episodes are bad for prices,” Hernan Yellati, a strategist at Caracas-based brokerage BancTrust & Co., said from Miami in an e-mail message. “There will be volatility in asset prices as long as uncertainty remains.”
Maduro faces soaring consumer prices, declining growth and shortages of goods from chicken to car parts. The central bank’s scarcity index, which measures the amount of products that are out of stock, rose to a record high of 20.4 percent in January.
Inflation accelerated to 25 percent in March, the fastest annual pace in 13 months, according to the central bank. Economic growth will drop to 1.9 percent this year, the slowest in three years, based on the average estimate of economists and analysts in a Bloomberg survey.
Barclays Plc (BARC) said in a research note that the political gridlock that follows Maduro’s victory may delay economic measures needed to maintain growth in the oil-producing nation.
“The main outcome of this election is a very weak presidency, and a high level of uncertainty may follow,” Alejandro Arreaza and Alejandro Grisanti wrote. The paralysis “can delay the implementation of the economic measures and could accelerate the deterioration of Venezuela’s already fragile fundamentals.”
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