Bonds News

Venezuela currency falls on global financial slump

CARACAS, Oct 27 (Reuters) - Venezuela’s bolivar currency has fallen to a one-year low on worries that falling crude prices could hurt the OPEC nation’s finances, the clearest sign to date the global credit crunch is affecting Venezuela.

The government of leftist President Hugo Chavez maintains a currency control locking the bolivar at 2.15 per dollar, but the legal parallel market spiked to as high as 6 last week and now trades around 5.5, traders told Reuters on Monday.

It stood around 4 as recently as recently as last month.

Traders said there was scant volume in the parallel market because banks and businesses are wary of parting with any dollars amid the tumbling price of Venezuela oil, which provides nearly all of the country’s export revenue.

The government insists it can weather the financial turmoil with the help of billions of dollars stashed in state funds.

But traders said limited transparency in the funds’ management has sparked doubts about how much they actually hold and spurred concern about a devaluation of the official rate.

“The perspectives changed radically in less than a month,” said one trader, who asked not to be identified. “The risk of devaluation has jumped as the price of crude has fallen.”

For most of this year, the government had generally kept the rate controlled below 4 bolivars to the dollar.

But the credit market turmoil has also largely eliminated the government’s main mechanism for controlling the parallel market: issuing dollar-denominated debt payable in bolivars to soak up liquidity in the local market.

Venezuela’s sovereign bonds, hammered by the global sell-off of emerging market securities, are trading at around half their face value.

Another strategy had been to sell off its portfolio of “structured notes,” securities that combine risk and return attributes of different bonds. But these will likely find few buyers because they are considered illiquid and risky.

Investors use the parallel market as a bellwether for Venezuelan market sentiment and an indicator of future inflationary pressures.

The rate spiked in September just after Chavez threw out the U.S. ambassador in a bilateral row, and reached an all-time high near 7 per dollar before last year’s failed constitutional referendum, which would have expanded Chavez’s power. (Writing by Brian Ellsworth; Editing by Neil Stempleman)