No default risk in Venezuela despite protests
Yields on Venezuelan debt have increased amid the country’s political unrest, yet the country is unlikely to stop paying its international bonds, say analysts
Violent protests that have hit Venezuela’s major
cities and left four people dead have not changed the outlook
for the country’s sovereign bonds, analysts said
|| Photo: andresAzp
The borrower, rated Caa1/B-/B+, is unlikely to
default on its debt as long as oil prices stay high, said
"Default would counterproductively increase the current
economic havoc," they said in a research note. "After the
sell-off, which has seen Venezuela 2027 yields reach new highs,
we think it an inopportune moment to unload bonds. Unless oil
prices see a precipitous collapse, (not our forecast) we expect
Venezuela to continue to service its debt obligations."
Bank of America Merrill Lynch analysts took a similar view.
"Investors have been selling bonds across the curve amid the
high levels of uncertainty, but the short end bonds have been
penalized excessively, as price and jump to default risk
instead of yield become the main drivers," they said in a
"We find some attractive valuations in the short end out to
2017 as we believe short-term capacity of payment remains
Four people have been reported dead in a series of protests
that have rocked Venezuela in recent weeks.
Bulltick cited yields on the sovereign’s 2027
bonds at 15.9% on Tuesday. CDS referencing Venezuela jumped
89bp the same day, trading at 1,698bp by mid-afternoon. It had
changed hands at 1,147bp at the start of the year, according to
data from Markit.
Meanwhile, Venezuela’s exchange rate is coming
under increasing pressure and markets are waiting to see form
of a new series of currency auctions. The last auction sold
dollars for VEF11.7, although Bulltick put the black market
rate at VEF87 to the dollar.
The government is expected to introduce a second auction
framework to supply dollars to the private sector. That is
likely to sell dollars for VEF25 to VEF30 apiece, BofA-Merrill