Venezuela

It seems everyone has a set of demands for what should happen to Venezuela. For the most part, from the streets of Caracas to the White House, these are loud but rather vague talking points. People in the bond market, though, have begun to put together a plan for reassembling the country’s economy and finances, the Financial Times reported. Of course it would be better if Venezuelans were able to agree their own coherent plan, but that is not happening right now.

More than 7 million Venezuelans went to the polls to vote against President Nicolas Maduro last weekend. But the more consequential opinion on Maduro's future may belong to China, Venezuela's biggest creditor and one of the few likely sources of funds needed to avert a possible default later this year, a Bloomberg View reported. The unofficial referendum, which was organized by the opposition, showed the depth of popular discontent with Maduro's plans to rewrite the constitution and enshrine himself in office. Turnout, at more than a third of registered voters, far exceeded expectations.

With political and social tension in Venezuela on the rise, investors should prepare for the “end game” by seeking out the country’s lowest-priced debt, according to Deutsche Bank AG. The cheapest bonds -- which generally carry longer maturities -- will provide the best return in a scenario under which Venezuela defaults and is forced to restructure, Hongtao Jiang, a strategist at the bank, wrote in a report. Jiang said while he doesn’t expect Venezuela to stop payments this year, it’s a possibility that bond buyers need to be prepared for, Bloomberg News reported.

Venezuela’s foreign reserves have dropped below $10bn for the first time in 15 years as chronic mismanagement, corruption and subdued oil prices continue to batter what used to be the wealthiest country in South America, the Financial Times reported. The reserves stood at $9.983bn, according to figures published on Friday from the central bank, representing a 77 per cent decrease since January 2009 when they hit a peak of $43bn. The fall comes at a time of heightened political tension.

The world’s riskiest credit got another jolt after S&P Global Ratings lowered Venezuela’s rating deeper into junk as the economy spirals down amid heightened political tension, Bloomberg News reported. S&P reduced the nation’s long-term foreign and local currency ratings to CCC-, or three notches below investment grade, from CCC on Tuesday. The New York-based company kept its negative outlook for Venezuela, signaling room for further downgrades. Fitch Ratings and Moody’s Investors Service also rank the country at speculative levels.

Venezuela’s state oil company, one of the most distressed credits in emerging markets, hired BancTrust & Co. to help arrange calls with investors, according to a person with direct knowledge of the matter, Bloomberg News reported. The calls with Petroleos de Venezuela SA officials including Chief Financial Officer Simon Zerpa, set to begin July 10, are meant to improve communication with bond investors and will be invitation-only to some of the company’s biggest creditors and emerging-market funds, said the person.

Bets on a Venezuelan default are climbing as international reserves slump toward $10 billion amid anti-government protests and President Nicolas Maduro’s push to rewrite the constitution. The implied probability of the country missing a payment over the next 12 months rose to 56 percent in June, according to credit-default swaps data compiled by Bloomberg. That’s the highest level since December, Bloomberg News reported. The odds of a credit event over the next five years increased to 91 percent last month.

Tuesday in Venezuela, armed groups attacked Congress and a police helicopter may or may not have dropped grenades onto the Supreme Court. Wednesday’s reaction from traders? Mostly a shrug. Venezuela’s benchmark bonds due in 2027 edged higher, while notes from the state oil company coming due this year were a hair lower, Bloomberg News reported. The cost to insure sovereign debt from default dropped the most in a month.

In the wake of Goldman Sachs’s controversial purchase of $2.8 billion of bonds held in Venezuela’s vaults, investors have been trying to quickly figure out what other hidden assets the country might be sitting on. The stakes are high. As the central bank’s officially published foreign-reserve figure dwindles to just over $10 billion, that secretive stockpile might ultimately decide whether the nation averts default or not, Bloomberg News reported. Calculating the value of those securities, as you might expect, is tricky.

Reports of a failure to pay a debt to Russia and a requested ruling on whether such a failure constitutes a “credit event” that could trigger insurance contracts on billions of dollars of international bonds have brought Venezuela closer than ever to the brink of financial collapse.