Bullish on chaos

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Why on earth would Venny bonds being going up now? As Caracas Chronicles readers, you of all people don’t need reminding that the country is a mess.

And not just in general, but especially right now: the launch of the recall referendum drive on President Maduro; a Guri Dam that’s days away from collapse; riots ending with military deployments in cities like Maracaibo, San Francisco, Maracay and even Caracas. Minister Jesús Farías caught on primetime TV saying the government ran out of dollars;  the economy grinding to a halt with five-day public sector weekends. Our crude oil basket selling at a 25% discount to WTI crude oil futures, as the “Big Four” oil service companies’ won’t keep extending credit to a visibly broke customer; and an overwhelming sense of chaos looming over the country…

And yet, Venny bonds are just loving it! VENZ and PDVSA debt is posting total returns of +4,5% on average month-to-date, three times the average for Emerging Market bonds for the same period. Some of the usual trends are showing again: Short-end bonds are topping the charts in yearly performance, and bond salesmen are dusting off their pitch about the Bachaqueros of Wall Street.

Some folks are pointing at rising oil prices, coupled with a benign context in global markets, to justify recent gains. But as we said, the icky stuff we’re producing nowadays is way below international benchmarks, and financial markets have a nasty tendency to get wild way too often, like today in Japan.

It seems that, to be profitable in the Venny market of today, you need to be either under sensory deprivation, blissfully ignorant of the endless pile of negative headlines; or just plain dead inside. In this market, you have to throw away all economic and moral considerations regarding the nation’s debt crisis, and buy into the same-old rumours of alleged government buybacks in the PDVSA short end for a quick, somewhat predictable buck.
Just goes to show: total devastation is no bar to your neighbourhood friendly bond hawk!

bullish on chaos 2

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Russian-Venezuelan, Caraqueño born and raised, stuck between an addiction to High Beta and total despair over the future of VennyLand. Strategist at Knossos Asset Management, views are his own.

20 COMMENTS

  1. I beleive it’s because some may see a light at the end of the tunnel, though it may be premature. Similar for the free market rate, down from highs, stuck too low for current inflation/expectations, though some may be the effect of commercial/industrial demand grinding to a halt.

  2. Takes guts too. You wouldn’t make me touch October’s PDVSA bonds with a stick for anything in the world. Betting everything on red feels like a wiser deal to me.

    • Totally.. Agree with you. Just last week you could get any bonds you wanted, now they are scarcer than toilet paper… the bachaqueros strike again!

      • Well, yesterday’s volumes were about USD 180mm face value. That’s the biggest daily amount since early March (where the market was reinvesting the proceeds of the VENZ 2016 maturity). I’ve seen lots of different players jumping in, but the rally allegedly started with ‘locals’, euphemism for govt entities.

  3. Durations, durations. I am sure there will be some forthcoming press release about another Chinese or possibly Russian line of credit. And if that’s the case, we know that money will go to bonds before it goes to solving real problems.

  4. But, isn’t still the chavista government willing to sell even their mums to get some liquid cash something that would make venezuelan bonds more attractive?

  5. Understand that an European financial institution wasnt paid a comparatively small amount in recent days , Pdvsa’s reason , the most congent of all , we havent got the money. If they dont have the money to pay this relatively paltry amount ….what are the chances of paying the much larger Bond amounts when they fall due towards the end of the year……..!! The Nation is something else because the amounts falling due this year are much smaller, more manageable , maybe the Chinese have agreed to pospone some payments from the Republic giving it more oxygen to pay Pdvsa’s more pressing debt………. that might help Pdvsa raise more money to pay its end of the year expiring debt……….markets are sometimes a bit wild …….volatile…….. and not very rational ……time will tell…!!

  6. Is there a chance that ‘enchufados’ are the ones buying the bonds at preferential rates? A ‘me pago y me doy el vuelto’ kind of deal that would allow them to launder some money and eventually sell at the real market (When you bought at 12 Bs/USD it doesn’t matter a bit at what price you sell, as long as it’s higher than 2% of what you paid for them in $).

  7. Daniel, yes it is crazy to see bonds rallying like they are doing! But you should take the time to explain the readers that not only CHAVISTAS hold this bonds… But that U.S EM & HY FI Mutual Fund Company’s like MFS, Alliance Bernstein, Ameritrade, Fidelity and so forth hold more than 30% of the debt (might not trade them like stocks like locals). Also, there are a lot of investors from LATAM that includes honest and hard working Venezuelans taking the opportunity to diversify their portfolios to increase returns… Because, let/ be honest if 10% to 15% of your portfolio is yielding 25% it’s not a bad payday for the client and clients understand the RISK of default but they love their gains more. As a trader I am in the business of making my clients money, and in WALL STREET we don’t see politics we see returns.

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