By Daniel Bases
NEW YORK, March 6 Venezuelan debt prices fell on
Wednesday as investors, who bid up prices in the months before
President Hugo Chavez's death on Tuesday, took advantage of
early buying to sell into the rally, knocking benchmark bonds
The country's 2027 sovereign U.S. dollar-denominated Global
bonds were bid down 2.10 points in price, lifting
their yield to 9.168 percent, according to Reuters data.
"I think there was a lot of buying in anticipation of him
dying and now we have hit the event. I'm surprised there hasn't
been more selling," said David Spegel, global head of emerging
markets strategy at ING Wholesale Banking.
A charismatic firebrand, Chavez created a highly centralized
political system, overseeing the widespread nationalization of
the country's industries. Investors are hoping that Venezuela
moves back toward market-oriented economic policies and away
from Chavez's socialist "Bolivarian revolution."
On June 30, 2011, when Chavez announced that he had cancer,
yields on the 2027 bonds were hovering above 13 percent. They
hit a low of 8.6 percent a month ago.
Bonds of state-run oil company Petroleos de Venezuela SA
(PDVSA) also fell on Wednesday.
"The market initially came in and tried to push higher but
this was met with a lot of selling. Since then we have had some
tentative inquiry from accounts looking to do some buying on
weakness," said Siobhan Morden, emerging market debt strategist
at Jeffries & Co in New York.
"I would have thought we would have tested higher, but it is
just so lopsided in terms of a crowded long position," she said.
Given that yields on Venezuelan debt are significantly
higher than most everywhere else in the world and its oil-backed
economy provides a steady flow of cash despite heavy social
spending, Venezuelan debt overall has been one of the better
So far this year, Venezuela's U.S. dollar-denominated
sovereign bonds have returned 4.2 percent, according to the
JPMorgan Emerging Markets Bond Index Plus (EMBI+). Last
year, the Venezuelan debt returned over 46 percent to investors,
nearly three times better than the overall index.
PDVSA 2017 bonds were bid down 1.5 points
in price, pushing the yields up to 9.49 percent in midday New
Chavez became a hero to Venezuela's poor by providing
subsidized food and free health clinics, paid for with revenue
from oil sales.
"We have been overweight (Venezuelan bonds) all along as we
always considered that even though there were fiscal excesses,
the reality is Venezuela remains a powerhouse in oil
production," said Greg Saichin head of emerging markets
portfolio management at Pioneer Investments in London.
"Despite anti U.S. rhetoric, the new government will have to
mend its relations with the U.S. and that will be good for oil
industry and PDVSA," he said, adding: "We prefer PDVSA because
that has offshore assets which safeguards a bit in terms of
credit risk. Venezuela may have the privilege to default but
PDVSA does not."
Chavez's death does leave the OPEC nation's future on an
uncertain path, prompting some investors to buy more protection
against defaults or restructurings of their Venezuelan debt.
Prices on credit default swaps jumped to $662,000 annually for
five years, up from $638,000 on Tuesday, according to data
Venezuela is the world's eleventh biggest crude exporter, a
top-four supplier to the United States and an increasingly
important fuel source for China. In 2011, OPEC said the nation
had overtaken Saudi Arabia as the country with the world's
biggest crude reserves.