Venezuelan bonds have rallied sharply over the past week as the country’s opposition has mounted a renewed legislative challenge to President Nicolas Maduro, whose second term in office started this month and has been widely dubbed as illegitimate.
The opposition-run congress on Tuesday declared Maduro a usurper, and the United States and numerous Latin American governments have called the legislature the country’s only legitimate institution.
The country’s bonds are nearly all in default as Venezuela’s hyperinflationary economy spirals downward and investors see little chance of a debt restructuring under Maduro, whose government is under sanctions by the United States.
Venezuela’s benchmark 2027 bond is trading at a more than five-month high of 28 cents on the dollar, rising from under 23 cents just over a week ago for a paper return of over 20 percent. The state oil company Petroleos de Venezuela Feb 2022 bond is also a near five-month high of 24.5 cents.
“There are some signs of defections and some news reports of the U.S. mulling over intensifying sanctions … all of that is adding to a renewed possibility of change in regime combined with very depressed prices,” said Shamaila Khan, director of emerging market debt at AllianceBernstein in New York.
AB’s EM Debt portfolio owned Venezuela’s 2027 bond as of a September 2018 filing.
“There has been speculation in the past and right now that’s all it is, speculation,” she said, on the possibility of a change in the government.
The combative 35-year-old Juan Guaido, the new leader of the congress, has said he is willing to assume the presidency to replace Maduro due to accusations of fraud in last year’s election. Advisers to U.S. President Donald Trump are considering recognizing Guaido as the country’s legitimate leader, sources have said.
To be sure, an investor in Venezuela who asked not to be identified said because of low prices and exceptionally thin trading volumes “any fund that decides to make a speculative purchase will move the market.”
Prices could also be benefiting from a double-digit percentage rise in oil prices so far this year.
Maduro’s government and state-owned companies owe some $8 billion in unpaid interest and principal amid the collapse of the country’s once-wealthy socialist economy.
A group of creditors has demanded payment on a $1.5 billion Venezuelan bond that is in default, kicking off a long-awaited showdown between debt holders and the crisis-wracked OPEC nation.
Maduro says the government is victim of an “economic war” led by opposition adversaries.
(Reporting by Corina Pons and Rodrigo Campos, Writing by Brian Ellsworth, Editing by Rosalba O’Brien)