Venezuelan Supply Talk Gets Louder

Talk of an imminent Venezuela bond continued to swirl Wednesday, with RBS citing local rumors about an up to $4bn 12% 2031. The specific details associated with market chatter suggests that there may be some weight behind the rumors, though several shops including RBS say the sovereign is under no pressure to issue. If the sovereign were to issue a new 2031, RBS calculates that it will likely be priced at 101.00, but with a fair value yield to maturity and secondary level of 14.8% and 82.20, respectively. Such USD deals are typically sold at the official FX rate to locals who arbitrage against the weaker parallel rate by selling the bonds to foreigners at a steep discount. It is thought that the government will opt for a longer dated bond to smooth out debt maturities. Nomura, however, believes that the issuer may well be targeted at importers in need of dollar assets and could come in a single transaction. However, the shop has its doubts about an imminent issue partly because the Minister of Planning and Financing Jorge Giordani has expressed opposition to such issues. That said, Nomura expects more supply later in the year as the government seeks to replenish the Sitme, the state-run FX system.