It is no wonder Venezuela is suffering... Venezuelan bond prices have collapsed around 51 - the lowest close in at least 5 years as yields surge to around 21% yield. The market is pricing in extremely high probability of default (around 63% over 2Y, and 80% based on 5Y CDS) which, as Bloomberg reports, [10] is surging as "every $1 drop in oil is around $770 million of lost revenue, so their ability to pay has taken a big hit."
[11]
Venezuelan bonds fell to a five-year low as traders projected higher chances of default after OPEC’s decision to maintain oil output pushed crude lower.
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“Every $1 drop in oil is around $770 million of lost revenue, so their ability to pay has taken a big hit,” Kevin Daly, a money manager at Aberdeen Asset Management, said in an e-mailed response to questions. “The market is already pricing in a high probability of default next year.”
Bank of America Corp. lowered its recommendation on Venezuelan bonds today to marketweight from overweight, citing the OPEC decision. At current oil prices, Venezuela will need an additional $25.6 billion to finance imports, the bank said.
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“The Venezuelan government has not been very responsive, not acting fast enough to adjust, and not calming the markets with executable plans to respond to these external pressures.”
Venezuela can overcome any situation arising from lower oil prices and is taking measures to protect itself amid the drop, Rafael Ramirez, the nation’s foreign minister, said in an interview published in the newspaper Panorama.
Venezuela needs a break-even price near $85 a barrel with adjustments to pay for its dollar liabilities, Jefferies Group LLC analyst Siobhan Morden said in a research note.
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