Vene Bonds Tighten on Chavez News

Venezuela’s bonds tightened Monday as Hugo Chavez hinted at the possibility he may be incapacitated due to deteriorating health and named Vice President Nicolas Maduro as his chosen successor. The benchmark 2027s tightened 100bp to 8.3%, according to Bulltick Capital. “A change at the presidential level could sustain the current downward trend in yields,” the shop says in a note, bringing Venezuela closer to single B credits including Ukraine (yielding 6.9%), Egypt (5.5%), and Mongolia (5.7%). Venezuela’s constitution states that if the president is incapable of being inaugurated, the president of the national assembly, Diosdado Cabello, would assume power until elections are called within 30 days. If the president is incapacitated after inauguration, the vp would take over, and also call elections. While the leadership outlook has changed somewhat, analysts find Chavez’s party would still have considerable strength without him. “In the short term, Venezuelan bond prices are likely to be well supported, as the market prices in more aggressively the “regime change” hypothesis. However, in the medium term, we expect more volatility and potentially downside to asset prices, as that hypothesis is far from a foregone conclusion,” Nomura says in a note. “We are of the opinion that any of the possible Chavez successors will be more moderate than Chavez, and we expect a transition in line with the constitution. Therefore, we reiterate our overweight call on Venezuela/PDVSA assets,” Barclays says in a note.