Venezuela Bonds Tumble On Report U.S. To Ban Trading

Tyler Durden's picture

Venezuela bonds are tumbling after the WSJ reported that the US government was considering a ban on trading in the country's debt. PDVSA’s 12.75% 2022s were trading at 44.75 this morning,down from around 45.65 at Tuesday's close and two points weaker than levels seen earlier in the week, according to MarketAxess. Bond traders also sold PDVSA's 6% 2026s, which had fallen about a point to 30.00.

On Tuesday evening, the WSJ reported that the U.S. government is considering "restricting trades in Venezuelan debt as it seeks to punish President Nicolás Maduro for undermining the country’s democracy" and that "the unprecedented move would temporarily ban U.S.-regulated financial institutions from buying and selling dollar-denominated bonds issued by the Republic of Venezuela and state oil company Petróleos de Venezuela SA, according to a person who was briefed on the proposal."

One option being considered is banning the trading in just some papers issued by the state oil company to limit its access to external funds, said a third person. The ban would be the first step against the Venezuelan financial system since Mr. Trump promised “swift economic action” against Mr. Maduro for installing a parallel parliament staffed with loyalists earlier this month.

Then again, Trump may not have to lift a finger to accelerate Venezuela's default. As reported last week, following the recent sanctions against Maduro's socialist paradise, foreign banks are shutting out Venezuelan companies and are refusing to provide the country's oil tankers with the letters of credit they need to offload oil, and replace it for one commodity most needed in Venezuela: hard dollars.  As a result, the decline in PDVSA's (and Venezuela's) dollar reserves is accelerating with every day, a pace which roughly tracks the recent plungein Venezuela bonds.

Or not.

Not everyone is convinced that Venezuela is facing an imminent default. In a separate report, the WSJ writes that one large holder of Venezuelan debt, Ashmore Group PLC, thinks investors have come to the wrong conclusion.

Mr. Maduro’s political power “has just increased dramatically,” said Jan Dehn, head of research at the emerging-market fund, which has $56 billion under management. The July vote, which was widely seen as fraudulent, convened a powerful new assembly aligned with Mr. Maduro that will be able to override other institutions and redraft the constitution.


Mr. Maduro’s administration has prioritized paying bondholders, even as the wider economy has shrunk, sparking widespread unrest and food shortages. As long as he retains a tight grip on power, that is unlikely to change, Mr. Dehn believes.

According to Dehn, Maduro’s political strength is one of three factors that should mean the country “can continue to service the debt indefinitely.” The other two are that oil remains above $40 a barrel and that state-owned oil company Petróleos de Venezuela SA, PdVSA, retains access to working capital.

Additionally, Maduro is afraid what would happen to PDVSA assets once the country defaults (not to mention to the army's support of his regime, which has been solid as long as the money keeps flowing):

Most analysts and investors believe that this is because the government wants to keep the oil flowing. PdVSA is responsible for half of Venezuela’s fiscal income and some 90% of its exports, according to Standard & Poor’s.  For some analysts, Venezuela’s fear is that a debt default would push investors to try to seize PdVSA’s foreign assets.


Mr. Dehn has another theory over what is behind that fear: that PdVSA’s so-called joint venture partners, such as Russia’s Rosneft and China, would pull lines of credit if the country defaulted. That would starve it of working capital and prevent it from producing oil.


“If he stops [servicing the debt]…oil production will stop. The government will fall,” said Mr. Dehn.

In thie case, one can imagine why Maduro would do everything in his power to delay default until the bitter end, both for creditors and his administration, which has so far had the support of the army but will promptly lose it once the cash flow tries up. That's also why many Venezuelan bonds rebounded since the Constitutional Assembly vote.

However, if the Journal is corect and the US is about to block trading of Venezuela bonds, that could well be the tipping point that forces creditors to finally give up on the Caracas regime, leading to a prompt default and the fall of Maduro, in the process Washington will once again have succeeded in toppling a foreign regime, this time without firing a single shot.

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Creepy_Azz_Crackaah's picture

Damn! Venezuela leadership know how to properly run a country.

Did they attend that "school" that The Bern Feel's wife had a part in?

FREE $HIT FOR EVERYBODY!!! It works. It's just that the "smart" people weren't in charge of it when it failed.

Honey-Badger's picture

The US cut off SWIFT payments as part of ongoing sanctions and this continues to destroy what little the people have left there.....when you don't have SWIFT you can't pay anyone to import things like toilet paper, food etc...

Yeah socialism sucks but that is not the only thing at play here folks, the Luciferian Anglo Zionist bankers have a large hand in this collapse.

MillionDollarButter's picture

Surprise! Socialism's final stage, vulture capitalist rescue from international banks, or feeling the Bern.

Miss Informed's picture

Socialism's final stage? Looks to me like a country being eaten by a giant vampire squid.

nmewn's picture

Well the paper bonds do have other uses.

So, win-win!  ;-)

downwiththebanks's picture

Sorry--the Bern's with your great captalist masters on this one.

Ghost of PartysOver's picture

Yep, the Joos did it.  Holy crap dude, give it a rest.

Honey-Badger's picture

I never mentioned jews or judiasm, I clearly stated they were English/Israeli by decent and Luciferian by religion.

Miss Informed's picture

....but it almost goes without saying that they are not Presbyterians.

Miss Informed's picture

Talk about free shit. How about $38 billion for the terrorist criminals in Israel? F35 joint strike fighters, 5 billion in anti missle systems, everything. But $127 a month to help people with food we can't do that cause it's "socialism". Jeeeze

spastic_colon's picture

goldman buying vennie bonds on the cheap.........

youngman's picture

I dont think Venezuela is considered and EMERGING about a dying buy the bonds sucker....go for that big end of year

mofinance's picture

Note to Maduro. Just cash in your chips and flea the damn country already! Dont worry I am sure you wont have to drive another bus as long as you live.  

downwiththebanks's picture

You wish.  Pretty soon all of Uncle Sam's little MUD sock puppets will be hanging from yard-arms!

BritBob's picture

 Maduro is a hypocrite - the bleats on the Malvinas usurped when speaking in CELAC on behalf of Argentina, and then denies his own people the basic democratic rights.

The madness...

Falklands- Never Belonged to Argentina:

downwiththebanks's picture

The Brits stole the Malvinas fair and square.

Miss Informed's picture

All the embargoes and sanctions and "restricting access to Swift" are just hastening the time that the world will flee the dollar en mass. Who wants to deal with a dishonest broker that assaults, threatens and has nothing of value to offer in return.

youngman's picture

well we have plenty of Toilet paper....that is something to offer..

veritas semper vinces's picture

Yes. You continue to print them by Trillions.

baldknobber's picture

We might not want to provoke this guy. I mean someone with that many medals is probaly a military genius

Sam Spayed's picture

Those are bus driving medals.

Joebloinvestor's picture


How about no one underwrite the worthless crap.

silverer's picture

What typically happens next after the general markets are locked out of any dealing or trading, Goldman Sachs steps in and offers to buy the bonds at a ridiculous discount. Given no other options, Maduro would probably go for it. Since continued socialism and Maduro's policies guarantees failure and default, it next goes back to the bond deal that Goldman put together that pledges the countries assets to cover a default. Let me spell that asset for you: O-I-L. With the US military to back up that business deal, it looks like Goldman will be more than happy to take those bonds off Venezuela's hands. Or I should say out of their wallets.

Dutch1206's picture

Get those 100Y Vene's now.

RedBaron616's picture

What? No CIA conspiracy posts yet? I'm disappointed. Perhaps even the ones that think the CIA is behind everything have to admit that Maduro would have been gone by now if they were.

I hope no country takes Maduro in the end and he ends up hanging from a lightpole (one that doesn't work, naturally). The proper end of all socialists.

downwiththebanks's picture

Says the Langley sock puppet!

You don't even know the enemy--that's why the CIA has FAILED for 20 years to foment a fascist coup.  I wonder if this clown signed the Carmona Decree.  Another CIAFAIL!

The incompetent twits at the CIA lose all over the world.  All the money in the world don't make them unretarded.

That said, they killed Chavez.  For them, a great victory.  Maduro doesn't have Hugo's chops.

But the Constituent Assembly--that's another story.

You're fucked.  Just sit back and enjoy it.

omi's picture

Can someone please explain how this is not the same as terrorism in the financial sphere?

downwiththebanks's picture

Oh no!  What will the Venezuelan government do if button pushers won't push buttons?

Hard as it is for banker-gangster fascitarians to believe: Venezuela does not need you.

Madcow's picture

You can bet China is in there buying up all those heavy oil reserves like mad. 

silverer's picture

That's the US. It can always be counted on to make a bad situation worse. It won't be long before the US has a "compelling humanitarian reason" to send the military in. Something tells me the oil will be paid more attention to than the population. For humanitarian reasons, you understand.

Sam Spayed's picture

Do you enjoy the sight of people living in marxist squalor?

downwiththebanks's picture

Venezuela lived in the squalor of whiteboy capitalism for 500 years.  

Whiteboy capitalists killed off the population.

Whiteboy capitalists stole the land.

Whiteboy capitalists pillaged the resources.

But hey... it's only 5 centuries!

Retired Guy's picture

You infer too much intelligence to the US government. They didn't take the Kuwait or Iraq oil. If US troops take a country it won't be for any benefit at all for the American people.

sinbad2's picture

That's not quite right, the US made Kuwait pay for its rescue, after the US encouraged Iraq to invade Kuwait, for stealing Iraqi oil, which they did with US technology(Chevron). I think Kuwait is still paying the US.

As for Iraq, well the Iraqi oil was split up amongst the gang, all the big western oil companies got a slice of the Iraqi oil.  However the US created a new Iraqi central bank, that only accepts US dollars, and the US makes a cool $1 billion a day, moneychanging.

RTUT's picture

Barry Obama and Chavez held hands, Maduro in the background, on the eventful day they met.   The socialists took control and began the journey to a take over of the country as they hailed, "We are all socialists now."  Barry probably thinking, 'If only.. If only I could create this heaven in the U.S.'.  How proud they must be of their accomplishments, creating a hell hole that the citizens are now fleeing from.  You know how to pick them, Barry.

Sam Spayed's picture

What idiot would issue debt to these marxist reprobates???

downwiththebanks's picture

What kind of Marxist would accept debt she or he intends to repay from any parastical, do-nothing button-pushing banker-gangster?

Teja's picture

Disoriented... is Maduro one of the Good ones because he is supported by Russia and standing up to the Zionist Oligarchs, or is he one of the Bad ones because he is Marxist? There are prominent socialists in the UK supporting him or at least avoiding to condemn him.

If only we knew his stance regarding Islam, that would help.

AllBentOutOfShape's picture

Venezuela = another victim of US imperialism

steve2241's picture

Nice move by Mnuchin.