Venezuela Bond Due in a Week Offers Quick Gains for Risk Takers

  • Country has $1.5 billion of sovereign bonds due Feb. 26
  • Bond prices show skepticism that government will pay

Traders who buy Venezuela’s bonds due next week may be in store for a 3.4 percent profit in a week’s time.

Holders of the $1.5 billion of sovereign notes are asking for a price of 96.7 cents on the dollar even as analysts say the country has enough money to pay off the securities coming due Feb. 26. It may seem like an attractive bet for anyone willing to stomach the risk. Of course, if Venezuela misses the payment the bonds will collapse. 

Economists and analysts from Barclays Plc to Citigroup Inc. agree that Venezuela is skidding toward a default because it depends on oil sales for almost all its hard currency needs and is suffering a dollar shortage. Most predict the country is likely to make good on its obligations next week and stop payments only in October or November when bonds from the state oil company come due. The 76 percent plunge in oil prices in the past two years has left Venezuela without the income to both service its debt and import enough food and basic goods to satisfy demand. 

“I am in the camp that it does pay and offers a nice return, but your upside-to-downside risk is a little skewed,” said Ray Zucaro, the chief investment officer of RVX Asset Management in Aventura, Florida. “If everything goes right, you make a quick profit; but if anything goes wrong, what were you doing buying Venezuela at 95 cents on the dollar?”

Credit-default swaps traders are pricing in a 73 percent probability of default this year. The Petroleos de Venezuela bonds due in October trade at 59.5 cents on the dollar.

President Nicolas Maduro raised the price of the country’s subsidized gasoline by 6,000 percent on Wednesday, yet it is still the cheapest in the world. Maduro also devalued the official exchange rate, allowing the government to boost income by buying more bolivars with the dollars it sells.

Yet the moves are too little and too late, said Regis Chatellier, a strategist at Societe Generale SA in London.

“They’re not going to avoid a default this year,” he said. “You’d need oil to go back above $100, and I don’t think they’re going to make it.”

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