Venezuela Bonds Drop for Third Day on Heightened Default Concern

  • El Nacional reported that Maduro recieved proposal for default
  • Benchmark bond due in 2027 has fallen 7.6% in past three days

Venezuela bonds slumped for the third straight day amid concern the South American nation is close to defaulting after a local newspaper said a government official had proposed stopping payments on foreign debt.

The yield on the country’s $4 billion of dollar bonds due in 2027 rose 0.33 percentage point to 28.42 percent as of 12 p.m. on Wednesday in New York. The price on the notes, which carry a coupon of 9.25 percent, has fallen 7.6 percent in the past three trading days to 35.62 cents on the dollar.

Caracas-based newspaper El Nacional reported Feb. 7 that the country’s new Economy Vice President Luis Salas earlier this month proposed halting foreign debt payments in a meeting with President Nicolas Maduro. The newspaper didn’t say where it got the information and said both the oil and commerce ministers opposed the proposal.

“It’s the first reported access to internal cabinet dialogue that we have that suggests that default is being pushed for at the top echelons of government and by the new top economic policy maker,” Russ Dallen, a managing partner at Latinvest in Miami, said in an e-mailed response to questions.

Venezuela’s Finance Ministry declined to comment on the report when contacted by telephone Wednesday. 

Venezuela’s government may be rethinking its debt strategy after the opposition won a so-called super majority in congress last year after the country made $5.2 billion in payments on foreign debt in October and November, Dallen said.

“The government now realizes that honoring its external financial obligations bought it no votes and that had they used that $5.2 billion to put a chicken in every pot on top of a new stove or in a new refrigerator in barrios across the country, they would’ve gotten a lot more votes,” he said.

Salas, a 39-year-old university professor, was named by Maduro as head of the country’s economy in a cabinet reshuffle last month. Salas, who is seen as one of the more radical members within the government, argued in a economic pamphlet published last year that inflation doesn’t exist “in real life” and is instead a phenomenon caused by speculation, usury and hoarding.

Maduro, in a post on Facebook Tuesday evening, commented on the meeting with his economic team. 

“I reviewed the agenda of decisions that I’ve been activating together with the national productive economic council,” Maduro said. “With the meeting finished, we set out to implement the decisions.”

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