The 60-70 basis-point post-election surge in Venezuela’s benchmark foreign currency bond yields is already starting to reverse.
Despite disappointment among many in the overseas investment world over a comfortable re-election in Venezuela of populist left-wing President Hugo Chavez on Sunday there are quite a few who are already wading in to buy back the government’s dollar bonds. Not surprising, as Venezuelan sovereign bonds yield some 10 percentage points on average over U.S. Treasuries and 700 basis points more than the EMBIG sovereign emerging bond index. It’s pretty hard to keep away from that sort of yield, especially when your pockets are full of cash, the U.S. Federal Reserve is pumping more in every month and Venezuela is full of expensive oil .
The feeling among investors clearly is that while a victory for opposition candidate Henrique Capriles would have been preferable, Chavez is not not a disaster either given that his policies are helping maintain a steady supply of thse high-yield bonds. And with oil prices over $110 a barrel, it is highly unlikely he will shirk on repaying debt.
Analysts at JPMorgan are among those who have moved Venezuelan bonds back to overweight in their model portfolio. They argue first of all that Chavez’s convincing win has removed the risk of post-election violence (a major fear in a country awash with guns) and second, they note the continued demand for high-spread assets:
The post-election market pull-back offers better levels to re-enter positions against a backdrop of ample global liquiditywhere Venezuela continues to look like an outlier if we compare its double-digit yields to the very low risk (in our view) of default in the foreseeable future.