March 6 (IFR) - Venezuela bonds slid up to 3 points on
Wednesday after investors decided to take profits and reduce
exposure to the oil-rich country after the announcement of Hugo
Chavez's death yesterday afternoon.
The uncertainty over Venezuela's short-term political future
has left investors preferring to sell and lock in gains after
what has been a decent run-up in the bonds since news of
Chavez's ill health inspired hopes of regime change among the
"It is a crowded trade and everything has been priced in
already," said a New York-based trader.
Venezuela bonds rallied several points Tuesday on news of
the president's deteriorating health, only to drop during a
speech yesterday by vice-president and Chavez's hand-picked
successor Nicolas Maduro. That speech included an announcement
that the government planned to expel a US embassy official.
"He was really aggressive. It is the same stuff but without
Chavez," said one trader, who noted that buying before the
speech soon reversed and sent prices lower.
Venezuela 2022s were last quoted at a wide bid/offer spread
of 118.25-119.50 after closing at 119.625. Meanwhile the 2022s
issued by state-owned oil company PDVSA were trading at
114.50-115.00 after reaching a high on Tuesday of 118.00.
Analysts are expecting more volatile trading in coming days
as investors sell on strength and wait for opportunities to
re-enter at cheaper levels.
"We saw some buyers really early in the New York open but
since then it is sellers, sellers," said Rodrigo Covian, a
trader at Bulltick in Miami. "There is some upside in the
future, but not in the short term."
Moody's has already revised its outlook to negative on
Venezuela's B2 foreign currency government bond rating, citing
political risks and uncertainty over its ability to turn around
the economy which has seen a marked deterioration.
Increased government spending in the wake of last year's
presidential elections has pushed the fiscal deficit higher and
left the government "highly overextended," the agency said.
"With Chavez' successor, whoever he may be, likely to face
significant challenges to his authority, Moody's believes it
will be difficult for him to make the economic policy
adjustments necessary to address these growing imbalances," the
The government is expected to call elections over the next
30 days as required by the constitution. A quick election should
work to the incumbent's advantage as Maduro should be able to
benefit from sympathy votes in the wake of Chavez's death.
Some analysts are already looking beyond what they assume to
be a Maduro victory at how such a government will direct
Maduro's aggressive rhetoric on Tuesday, according to
Siobhan Morden, head of Latin America strategy at Jefferies,
challenges the widespread view that the transition will move
toward "Chavismo light."
"On balance the headlines may now shift to more two-sided
risks with potential disappointment on a Maduro victory and the
still radical policy bias," she wrote.