Venezuelan bond prices fell on Jan. 29 after the U.S. announced plans to reimpose sanctions on the country’s oil and gas sector in light of recent actions taken by the Maduro government and the country’s Supreme Court disqualifying a candidate from competing in the presidential election later this year.
Following U.S. sanctions relief in October, demand for defaulted Venezuelan government bonds rose as investors expected that improved U.S.-Venezuela relations might eventually allow for debt restructuring.
After last week’s U.S. government announcement, however, Venezuelan government dollar bonds due in 2027 saw their most significant price drop since the beginning of the pandemic, declining 2.2 cents to 19.2 cents on the dollar. The state-owned oil company Petroleos de Venezuela, S.A. (PDVSA) also saw its bonds due in 2026 drop one cent.
Last week, JPMorgan Chase & Co. was expected to increase the weighting of Venezuelan government and PDVSA bonds in its EMBI index series, which have been rated zero since 2019. The U.S. sanctions relief in October led JPMorgan to put the bonds on an index watch observation period for a potential raise.
The EMBI indexes are the benchmark for hard currency bonds in emerging markets. JPMorgan is now postponing the update until the end of February. A raise in the weighting could increase the value of the bonds.
The U.S. threat of reimposing sanctions was in response to the Venezuelan Supreme Court’s decision to uphold a ban on the opposition's presidential candidate, María Corina Machado, from running for office, violating the Barbados Agreement.
The agreement, which was reached between Nicolás Maduro and the opposition Unitary Platform in October 2023, would allow for a free and fair electoral process.
To encourage its implementation, the Biden administration agreed to lift certain sanctions under the condition that the Maduro government let all presidential candidates run for office and release political prisoners by Nov. 30, 2023.
To ease the sanctions, the U.S. Department of the Treasury issued several general licenses in October, including a time-bound license authorizing transactions in the country's oil and gas sector.
It also authorized transactions involving state-owned gold company Minerven, and removed bans on the secondary trading of certain Venezuelan sovereign bonds and PDVSA debt and equity.
PDVSA was sanctioned in 2019 following Maduro’s reelection and global condemnation of a rigged election.
In late December, Venezuela released several political prisoners and allowed Machado to appeal her disqualification before the country’s Supreme Court. However, on Jan. 26, the court upheld the ban preventing Machado from running for office.
In response, the U.S. revoked the license dealing with Minerven with a wind-down period until Feb. 13, and threatened not to renew the oil and gas license when it expires on April 18 if Maduro does not keep his end of the deal on allowing all presidential candidates to compete.
Last week, Venezuela responded and threatened to stop accepting migrant deportation flights from the U.S. starting Feb. 13 if the Biden administration follows through with the reimposition of sanctions. Oil accounts for over 90 percent of Venezuela’s export revenue, which is expected to significantly decline if the sanctions are reimposed.
Following U.S. sanctions relief in October, demand for defaulted Venezuelan government bonds rose as investors expected that improved U.S.-Venezuela relations might eventually allow for debt restructuring.
After last week’s U.S. government announcement, however, Venezuelan government dollar bonds due in 2027 saw their most significant price drop since the beginning of the pandemic, declining 2.2 cents to 19.2 cents on the dollar. The state-owned oil company Petroleos de Venezuela, S.A. (PDVSA) also saw its bonds due in 2026 drop one cent.
Last week, JPMorgan Chase & Co. was expected to increase the weighting of Venezuelan government and PDVSA bonds in its EMBI index series, which have been rated zero since 2019. The U.S. sanctions relief in October led JPMorgan to put the bonds on an index watch observation period for a potential raise.
The EMBI indexes are the benchmark for hard currency bonds in emerging markets. JPMorgan is now postponing the update until the end of February. A raise in the weighting could increase the value of the bonds.
The U.S. threat of reimposing sanctions was in response to the Venezuelan Supreme Court’s decision to uphold a ban on the opposition's presidential candidate, María Corina Machado, from running for office, violating the Barbados Agreement.
The agreement, which was reached between Nicolás Maduro and the opposition Unitary Platform in October 2023, would allow for a free and fair electoral process.
To encourage its implementation, the Biden administration agreed to lift certain sanctions under the condition that the Maduro government let all presidential candidates run for office and release political prisoners by Nov. 30, 2023.
To ease the sanctions, the U.S. Department of the Treasury issued several general licenses in October, including a time-bound license authorizing transactions in the country's oil and gas sector.
It also authorized transactions involving state-owned gold company Minerven, and removed bans on the secondary trading of certain Venezuelan sovereign bonds and PDVSA debt and equity.
PDVSA was sanctioned in 2019 following Maduro’s reelection and global condemnation of a rigged election.
In late December, Venezuela released several political prisoners and allowed Machado to appeal her disqualification before the country’s Supreme Court. However, on Jan. 26, the court upheld the ban preventing Machado from running for office.
In response, the U.S. revoked the license dealing with Minerven with a wind-down period until Feb. 13, and threatened not to renew the oil and gas license when it expires on April 18 if Maduro does not keep his end of the deal on allowing all presidential candidates to compete.
Last week, Venezuela responded and threatened to stop accepting migrant deportation flights from the U.S. starting Feb. 13 if the Biden administration follows through with the reimposition of sanctions. Oil accounts for over 90 percent of Venezuela’s export revenue, which is expected to significantly decline if the sanctions are reimposed.
