Venezuelan Bonds Extend Selloff as Maduro Rejects Trump Warning

  • Maduro presses ahead with call for new constitutional assembly
  • Sovereign and PDVSA bonds extend drop to one-year lows

BlackRock's Bisat Sees Perfect Storm in Venezuela Bonds

Venezuelan bonds dropped to a one-year low as political turmoil ahead of President Nicolas Maduro’s plans to rewrite the constitution put investors on edge.

The notes extended declines after a selloff last week following a warning from the U.S. that it could take action if Maduro convenes an assembly to rewrite the charter, which critics view as a power grab by an increasingly desperate administration. Street demonstrations have intensified as opponents demanded the plan be scrapped.

The opposition alliance over the weekend renewed its call on Maduro to cancel a July 30 vote to select delegates to the constitutional convention, and urged supporters to participate in a 48-hour general strike Wednesday and Thursday. U.S. President Donald Trump has promised “strong and swift economic actions” if Maduro goes through with the election.

“Commercial sanctions against Venezuela would almost certainly bring about a change in the government’s decision to continue servicing its external debt,” Francisco Rodriguez, the chief economist at Torino Capital in New York, said in a report Monday. “The government’s decision to pay its debt is in our view largely based on its fear that assets and revenue flows could be subject to attachment in the United States in the case of a default.”

The country’s $3 billion of notes maturing in five years plunged 3.4 cents to 44.3 cents on the dollar, capping a one-week drop of 8.5 cents, to the lowest price since May 2016. Similar-maturity bonds issued by the state-owned oil company Petroleos de Venezuela SA slumped 2.9 cents Monday to about 47 cents, according to prices compiled by Bloomberg.

Even without the political chaos, investors have been worried about Venezuela’s ability to pay its debt. Amid subdued oil prices, the country has struggled to import sufficient amounts of food and medicine while also making good on its overseas obligations. Foreign reserves have tumbled to a 15-year low of just under $10 billion, and the country faces payments on principal and interest of more than $5 billion in the remainder of the year.

While Venezuela would ultimately be able to sell its oil to other markets if the U.S. imposed sanctions, it would have to do so at a deep discount. That could shave an additional 11 percentage points off its gross domestic product, Rodriguez added.

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