Venezuela bonds drop on election doubt

Venezuela bonds fell on Monday after President Nicolás Maduro was declared the winner in an election the opposition vowed to challenge, fuelling fresh political tension in the South American nation.

Sovereign notes due 2034 lost 1.8 cent to trade at around 21 cents on the dollar, according to indicative price data compiled by Bloomberg. Securities issued by state-owned oil company Petróleos de Venezuela SA also dropped, with bonds expiring in 2026 down by two cents to about 12 cents on the dollar.

The country’s electoral authority said late on Sunday that Maduro got 51.2 percent of the vote, while opposition candidate Edmundo Gonzalez got 44.2 percent. The opposition rejected the result, saying González was well ahead in partial raw voting data it had access to and calling on the military to enforce what it said was the will of the people.

The United States, which has Maduro and several Venezuelan officials under sanctions, was quick to express doubts about the official tally. Some left-wing governments in Latin America also refrained from endorsing the results, with Chile’s Gabriel Boric saying “they were hard to believe” and Colombia Foreign Minister Luis Gilberto Murillo requesting a full recount of the votes to “dispel any doubts.”

“This situation is likely far from resolved,” Ricardo Penfold, a managing director at Seaport Global wrote in a note Monday, adding that both the US and European Union are expected to threaten additional sanctions. “Clear signals are needed that either the election results are accepted by the EU and US or that a negotiation process is underway.”

Markets widely expected Maduro to stay in power, pricing in about 30% chances of the opposition winning in the lead up to the vote, according to Barclays estimates. But major evidence of fraud would put pressure on bonds as a disputed outcome that potentially perpetuates or worsens sanctions against the Maduro government make a long-awaited debt restructuring process seem even more distant.

Uncertainty around the election — just days before the vote, some analysts were still speculating whether Maduro would push for a delay — has helped keep prices for the defaulted debt stuck in deeply distressed levels. Most notes issued by the government and oil company PDVSA trade below 20 cents on the dollar despite being reweighted in widely followed JPMorgan Chase & Co indexes in April. 

Maduro will be sworn in for a third six-year presidential term in January, after more than a decade in power. His government had been negotiating with the opposition and the Biden administration conditions to guarantee a fair vote. It’s unclear whether the vote’s results and the Machado’s allegations will hinder engagement with the US going forward.

“All in all, a bout of short-term volatility in bond prices is expected,” BancTrust & Co. analysts led by Ramiro Blazquez wrote in a note Monday. “The legitimacy of Nicolás Maduro has been put into question, domestically and externally.”

– TIMES/BLOOMBERG