Venezuelan Bonds Fall to Lowest Since 2004 on Supply Concern
By Lester Pimentel
May 8 (Bloomberg) -- Venezuela's benchmark bonds fell to the lowest since 2004 on concern a $4 billion sale last month will create a glut in the market.
The yield on Venezuela's benchmark 9 1/4 percent bonds maturing in 2027 rose 9 basis points, or 0.09 percentage point, to 10.49 percent at 4:25 p.m. in New York, according to JPMorgan Chase & Co. The bonds' price fell 0.7 cent on the dollar to 89.8 cents, the lowest since August 2004.
Venezuelan bonds declined for a second day on concern the bonds, which the government sold in the local market, will make their way into the international market. Venezuelans typically buy the bonds and sell them abroad to gain access to foreign currency, circumventing foreign-exchange restrictions.
``The supply overhang is what's causing the widening in spreads,'' said Cathy Hepworth, who manages more than $8 billion of emerging-market debt in Newark, New Jersey, for Prudential Financial Inc. ``People are expecting the locals to sell.''
Payment was due yesterday on the $4 billion of bonds the government sold to local investors in April to meet demand from people and companies for dollar-based assets.
The extra yield investors demand to own Venezuelan dollar bonds rather than Treasuries swelled 21 basis points, the most in emerging markets, to 6.36 percentage points, according to JPMorgan's EMBI Plus index. The spread on emerging-market bonds widened 10 basis points to 2.64 percentage points.
Default Risk
The risk of owning Venezuelan bonds increased to the highest since April 28, according to Bloomberg data. Five-year credit default swaps based on the country's debt jumped 13 basis points to 6.23 percentage points. That means it costs $623,000 to protect $10 million of the country's debt from default.
Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
Argentine bonds were little changed as farmers began an eight-day strike to protest tax increases after negotiations with the government of President Cristina Fernandez Kirchner stalled.
Five-year credit default swaps based on Argentina's debt increased 7 basis points to 6.2 percentage points, near the highest since June 22, 2005. That means it costs $620,000 to protect $10 million of the country's debt from default.
Farmers today blocked grain exports and withheld crops as the government refused to suspend a tax increase. The strike follows a work stoppage in March, when roadblocks triggered nationwide food shortages and added to a pickup in inflation.
``The talks fell apart as the government is taking a hard line,'' said Edwin Gutierrez, who manages about $5.5 billion of emerging-market debt for Aberdeen Asset Management Plc in London.
To contact the reporter on this story: Lester Pimentel in New York at lpimentel1@bloomberg.net |
