PDVSA Bonds Rally as Chavez Suffers New Health Setback

Venezuelan bonds rallied, with yields on notes from the state oil company falling to a record low, as President Hugo Chavez suffered a new setback in his recovery from a fourth cancer operation.

Yields on Petroleos de Venezuela SA’s 8.5 percent bonds due in 2017 fell 57 basis points, or 0.57 percentage point, to 8.46 percent at 2:40 p.m. in Caracas, data compiled by Bloomberg show. The price of the securities from PDVSA, as the company is known, rose 2.21 cents to 100.14 cents on the dollar.

Vice President Nicolas Maduro said he’s returning to Venezuela after spending time at Chavez’s bedside during a four-day visit to Cuba during which he revealed that the self-declared socialist suffered renewed complications from a respiratory infection following surgery three weeks ago. Bonds also rose as U.S. lawmakers passed a bill undoing tax increases for 99 percent of households, boosting the prospects for the world’s largest economy and buoying emerging-market assets.

“Venezuelan bonds are reacting to Chavez’s situation and to the news of the fiscal agreement in the United States,” Francisco Ghersi, the managing director at Knossos Asset Management in Caracas, said in an e-mailed response to questions. “Because the 2017 is the most liquid of PDVSA bonds, it normally moves most on good and bad news.”

Venezuelan government bonds returned 47 percent last year, the most in emerging markets after Ivory Coast, according to JPMorgan Chase & Co’s EMBI Global index, as investors bet that Chavez’s battle with an unspecified form of cancer would prevent him from completing a third term and pave the way for economic policies in Venezuela supporting investment.

Election Results

The government’s benchmark 2027 dollar bond rose 3.07 cent to 102.41 cents on the dollar, the highest price since Dec. 12. The yield fell 38 basis points to 8.95 percent, according to data compiled by Bloomberg.

Chavez, who first disclosed his cancer in June 2011, defeated Henrique Capriles Radonski by more than 10 percentage points in an Oct. 7 election after telling Venezuelans he was “totally free” of the disease. He was last seen in public on his arrival in Cuba on Dec. 10 and is due to start a third six-year term on Jan. 10, though the government has said the date and venue for the swearing-in ceremony are flexible.

Before departing for Cuba, Chavez urged Venezuelans to vote for Maduro, his long-time foreign minister and recently-appointed deputy, should his health prevent him from resuming office.

Surgery Complications

If Chavez is unable to start his new term on Jan. 10 and doesn’t step down, under the country’s constitution the National Assembly president must determine if the absence is temporary or permanent. If his absence is deemed permanent, the head of parliament must call for an election within 30 days.

During the Dec. 11 operation, his fourth in 18 months, Chavez experienced complications due to bleeding, Maduro said Dec. 13. Surgeons took corrective measures in time to control the bleeding, he said. A week later, Information Minister Ernesto Villegas said that Chavez was in “stable” condition after his medical team controlled a respiratory infection.

Maduro said yesterday he was encouraged by the the “immense strength” displayed by Chavez during two visits to the Havana hospital where the Venezuelan leader is being treated.

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