Venezuelan Bonds Jump as JPMorgan Returns Debt to Indexes
- About $53 billion worth of debt impacted by JPMorgan decision
- Both sovereign and PDVSA notes will return to firm’s EM gauges
Bonds from Venezuela and its state-owned oil company are rallying after JPMorgan Chase & Co. laid out a plan to re-weight the securities in widely followed emerging-market debt indexes.
About $53 billion of Venezuela’s sovereign bonds and Petroleos de Venezuela SA’s notes — which have lingered in default since 2017 — will re-enter the Emerging Market Bond Index series over three months starting April 30, a team led by Gloria Kim wrote in a Thursday statement. The decision comes just four months after the US government lifted a ban on trading the instruments on the secondary market.
The sovereign bonds rose as much as 3 cents across the curve, with notes maturing in 2027 rising to 21 cents on the US dollar, according to indicative pricing data compiled by Bloomberg and traders familiar with the prices, who asked not to be identified discussing the data. PDVSA bonds maturing in 2026 rose by 2.5 cents to 11 cents, the biggest jump since October.
The re-weighting stands to revive Venezuela’s once all-but-dead bond market, which had screeched to a halt amid the nation’s economic turmoil, political uncertainty and hard-hitting US sanctions. Investors, many of whom benchmark their emerging-market bond fund performance against JPMorgan’s EMBI series, are likely to reconsider exposure to the notes.
The bank had cut the debt’s weighting to zero in key emerging-market benchmarks in 2019 amid US sanctions. The Biden administration last year, however, loosened some of those restrictions and allowed US investors to buy the bonds again. Shortly after, the notes were put in an observation period for a potential change of treatment in the benchmarks.
“Prices will rise — but not that much,” said Fernando Losada, a managing director at Oppenheimer & Co. “There’s still the question on which sanctions could be reimposed.”
Money managers have been closely watching Venezuela’s elections since the US lifted restrictions on bond trading as a gesture of optimism that strongman President Nicolas Maduro would take on all challengers in an open election. The Biden administration will restore some sanctions, though, if opposition candidates are barred from running.
JPMorgan said Venezuela’s debt could be removed from the indexes if the US reimposes secondary-market trading restrictions.
Twenty securities — $24 billion in PDVSA bonds and $29 billion of sovereign notes — will hold weight in the EMBI Global and EMBI Global Diversified indexes, according to JPMorgan.
The EMBIG Core Index will exclude Venezuelan debt due to a governance consultation and rule change that prevents non-performing debt from re-entering the gauge, according to the bank
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