Operators await EU verdict on Venezuela elections

Bond traders are monitoring Venezuela’s upcoming elections for signs that relief from certain sanctions is looming, which could fuel the dormant market for the country’s defaulted debt.

While it is likely that the Socialist Party who is in power to win a majority of mayors and governors in Sunday’s regional elections, investors are more focused on whether the European Union monitors will give their stamp of approval to the elections.

That would motivate President Nicolás Maduro and his political opponents to resume stalled negotiations aimed at resolving a political impasse and addressing an economic crisis, including asking USA to ease the sanctions, they say.

“The market has desisted from any regime change in the near future and is being much more pragmatic. You are seeking sanctions relief, perhaps even financial sanctions relief, and a new commitment from Venezuela to the rest of the world.“, said Dean Tyler, Global Markets Director for BancTrust based in London.

So far, there are few signs from the bond market that the outlook is improving. Defaulted notes issued by state oil company PDVSA trade between 5 and 6 cents on the dollar, while sovereign bonds are between 9 and 10 cents, according to data compiled by Bloomberg.

The bonds recovered in September after the government reached a debt swap agreement and held negotiations with the opposition, raising optimism that both sides were heading toward an agreement that would include the easing of some sanctions by the USA. Those talks were suspended last month after the government withdrew.

Analysts say Sunday’s election has the potential to bring both sides to the table to talk again and provide a path for the presidential election in 2024.

“In the short term, a positive EU report could give bonds a temporary boost, but investors should be on the lookout for 2024“, said Guillermo Guerrero, strategist Emfi Group Ltd. in London. “Negotiations or elections are highly unlikely to lead to a material change in the underlying debt situation, at least for the next year”.