23 October 2017 by lberuti
One of the most profitable trade in Emerging Markets debt over the past two decades has been to invest in Venezuelan bonds, which have yielded over 9 percent per year on average. While the collapse in crude oil prices deepened the woes of an ill-prepared Venezuelan economy and triggered a humanitarian crisis, President Nicolas Maduro, like his predecessor Hugo Chavez, has been determined to meet all foreign bond payments, going as far as cutting imports to free up hard currency. It eventually led to the coining of a new term for Venezuela’s debt: hunger bonds. But that might all come to an end in the coming days, when two payments totalling roughly $2Bln come in quick succession. The country has already fallen behind on interest payments worth $350mln that were due earlier in the month, and did not trigger a credit event yet only because they have a grace period, which is effectively an additional number of days (30 in this very instance) given to work out technical glitches and deliver the cash. For a while, there has been a broad consensus in the credit market that Venezuela was going to default at some point down the road. The time may just be about to come. Even though it stands at 75%, the 1-year default probability of Venezuela could prove a bit optimistic.