Venezuelan Credit Dashboard: Default Risk Falls Below 50%

  • Investors decreased short-term default expectations to 44%
  • Odds of a credit event over the next five years are at 89%

Traders reduced their bets on a default of Venezuela’s dollar debt over the next year amid a thin repayment schedule in the first quarter.

The implied probability of nonpayment over the next 12 months plunged to 44 percent in January from 59 percent at the end of December, according to credit-default swaps data compiled by Bloomberg. That’s the first time the risk of default has been below 50 percent since September. The longer-term outlook is still a little murky, with the odds of a credit event over the next five years at 89 percent.

January proved to be a volatile month in Venezuelan politics as President Nicolas Maduro reshuffled his cabinet, named and delegated wide-ranging powers to a new vice president, replaced the head of the central bank and appointed a new board at state oil company Petroleos de Venezuela SA. That happened as officials continue to face declining oil production, accelerating inflation and a currency still weakening on the black market.

The real wild card for Venezuela’s finances continues to be the price of crude, which stagnated in January even as OPEC cuts started to kick in. With large payments totaling nearly $3 billion coming due in April, nerves may start to fray again if a sustained increase in oil prices is not seen soon.

To read more about Venezuela’s debt payment schedule this year, click here.

Venezuela Dashboard Indicators

  • Dollar bonds saw another month of solid gains, with the government’s $4 billion of notes due in 2027 rising 3.7 percent in January to 53.1 cents on the dollar as yields fell to 20.1 percent.
  • Venezuela’s international reserves slid to a fresh 15-year low of $10.6 billion on January 10 and hovered around that level for the rest of the month.
  • The weakest official exchange-rate, used mostly for imports deemed non-essential, weakened 2.3 percent in January -- the biggest monthly decline since July -- to end the month at 689 bolivars per dollar. On the illegal black market, a dollar costs more than five times as much.
  • The price Venezuela receives for its oil exports declined to $45.33 a barrel for the week ending January 27, a decrease of 1.3 percent from the end of previous month. The move closely tracked West Texas Intermediate, which was down 1.7 percent in January even as OPEC began to implement cuts.
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