Venezuelan Dollar Bonds Rally After Chavez Says He’s Fighting Cancer
- Submitted by: manso
- 07 / 02 / 2011
By Daniel Cancel and Leon Lazaroff - Jul 1, 2011 9:43 AM GMT-0400. Venezuelan bonds rallied on speculation Venezuelan President Hugo Chavez may not seek another term after he said he is being treated for cancer in Cuba, sparking speculation a new government may reverse policies that made the country’s debt the riskiest in emerging-markets.
The yield on Venezuela’s benchmark dollar bonds due in 2027 fell 49 basis points, or 0.49 percentage point, to 12.52 percent at 9:25 a.m. in New York, according to Bloomberg pricing. The price on the bonds rose 2.68 cents to 77.23 cents on the dollar.
Chavez, in a videotaped message read yesterday from Havana, said he was recovering favorably after doctors removed a tumor in a second, previously undisclosed operation since arriving in Cuba on June 8. The self-declared 21st century socialist revolutionary gave no date for his return, saying only that his treatment “can’t be rushed.” Chavez’s nationalizations and currency controls have made Venezuela’s bonds the highest- yielding debt in JPMorgan Chase & Co.’s benchmark EMBI+ index.
“The news lessens the probability that Chavez can stay in power for an indefinite period of time and increases the probability that you get more of a market friendly government in Venezuela,” said Bret Rosen, a Latin America debt strategist with Standard Chartered Bank in New York. “That said, the market may be underestimating what a potential transition could look like.”
The extra yield investors demand to own Venezuelan bonds instead of U.S. Treasuries shrank 55 basis points to 995, according to JPMorgan.
Chavez, 56, said he remains in charge of his nation’s affairs from Cuba and is in constant contact with his cabinet, which immediately swore its allegiance to the convalescing leader. Still, with nobody in the government matching Chavez’s clout with the poor, his hold on power may be challenged by the opposition if he doesn’t return home soon, said Luis Vicente Leon, director of Caracas-based pollster Datanalisis.
Chavez, who plans to seek re-election for a third term next year, said he continues to receive “complementary treatments” to kill the cancerous cells found by his doctors.
The prospect of Chavez’s prolonged absence could further embolden the opposition, which was strengthened after winning the majority of votes in congressional elections last September. Support for Chavez fell to near the lowest in eight years in March as a 40 percent devaluation of the bolivar and the fastest inflation among 78 countries tracked by Bloomberg erode the purchasing power of his working-class base.
“This development may open a period of unprecedented social and political uncertainty in Venezuela,” Alberto Ramos, a senior Latin America economist at Goldman Sachs Group Inc. in New York said in a research note.