Caracas Burns, Traders Buy Big: Venezuelan Credit Dashboard

  • Country’s benchmark dollar bond has best month in two years
  • Protests over past month have left about 30 people dead

Massive anti-government protests in Venezuela that have left about 30 people dead couldn’t stem the biggest rally in two years for the country’s bonds.

Despite food and medicine shortages, the government has reiterated its willingness to stay current on debt, and state oil company Petroleos de Venezuela SA made good on a $2.2 billion bond payment last month. The implied probability of the country missing a payment in the next 12 months fell to 50 percent from 56 percent at the end of March, according to credit-default swaps data compiled by Bloomberg.

That risk has remained flat into May, even as President Nicolas Maduro announced his plan to rewrite the constitution in a move widely condemned as a power grab that will move the country further into autocracy. The odds of a credit event over the next five years fell to 88 percent in April from 92 percent in March, according to CDS data.

With political uncertainty higher than ever, analysts have increasingly been talking of the possibility of a post-Maduro government.

Market Voices:

  • “The two obvious paths towards regime change are either a domestic shock of widespread violence and risk of military intervention or, conversely, an external shock that defunds the Chavismo regime and also forces military intervention,” Siobhan Morden, head of Latin America fixed income strategy at Nomura Securities International Inc., said in an emailed note on May 2.
  • “Maduro’s attempt to change the constitution could open up an opportunity for many moderates and Chavistas who don’t support the government to rally around the project of defending the constitution, thus further eroding Maduro’s support base,” Torino Capital chief economist Francisco Rodriguez said in an emailed note on May 2.
  • “Events over the past several weeks suggest that we are drawing closer to a tipping point, and that Maduro will struggle to remain in power beyond the end of his term,” Eurasia Group analysts Risa Grais-Targow and Agata Ciesielska said in emailed note on May 2.

Venezuela Dashboard Indicators

  • Venezuela’s dollar bonds had their best month in two years, with its benchmark $4 billion of notes due in 2027 rising 15 percent in April to 53.4 cents on the dollar; yields fell to 20.1 percent
  • PDVSA’s oil export basket price rose 2.4 percent to $42.46 a barrel
  • Venezuela’s international reserves fell to a fresh 15-year low of $10.1 billion
  • The weakest official exchange rate, used mostly for imports deemed non-essential, slumped 1.1 percent in April to end the month at 717 bolivars per dollar
  • On the black market, the U.S. dollar costs six times more than on the official market
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