Venezuela Bonds Fall After U.S. Announces Sanctions
By Julie Wernau and Carolyn Cui
Venezuelan bonds slipped Monday after the U.S. announced additional sanctions on the country but stopped short of targeting its oil sector.
Some investors said the Treasury Department's move to freeze the Venezuelan president's assets in the U.S. didn't alleviate concerns that stricter sanctions may be in the offing that could impact one of the South American nation's most crucial sources of revenue: oil sales to the U.S.
State-owned oil producer Petróleos de Venezuela SA's bonds due in November were down 0.9% in late New York trading Monday, according to UBS Wealth Management. Prices for the government's bonds due in 2038 were down 1.1%.
Following an election Sunday spearheaded by President Nicolás Maduro that will give his administration broad powers to redraft the constitution, The Wall Street Journal reported that U.S. government officials were considering stepping up sanctions against Venezuela that could target its oil industry by making it more difficult for Venezuela to import refined products from the U.S., which it uses to dilute its extra heavy oil to make it suitable for export.
"This certainly qualifies as 'strong and swift' in the immediate aftermath of Sunday's constituent assembly, but not yet crossing over to cross-border trade or financial flows or even business-specific transactions," said Siobhan Morden, head of Latin America fixed-income strategy at Nomura Securities International. She said she thinks there is still the potential for further action from the U.S.
Investors and analysts are increasingly worried about whether Venezuela will be able to make a total $725 million in debt payments over the coming month amid the country's political and humanitarian crisis.
Venezuela's credit-default swap spreads spiked on Friday and remained steady Monday, with the probability of default within a year reaching 62%, the highest since February 2016, when oil fell below $30 per barrel, according to Victor Fu, an emerging-market strategist at Stifel Nicolaus & Co.
Last week, the U.S. levied sanctions on 13 high-ranking officials in the Venezuelan government, a move that was quickly complemented by Colombia, Panama and Mexico.
A ban on Venezuelan crude imports, which is regarded one of the boldest options, would essentially cut off the country's largest source of dollar revenue. About 95% of Venezuela's export revenue comes from the oil sector, according to S&P Global Ratings. In 2016, Venezuela derived $10.5 billion from its crude exports to the U.S., or $28.7 million a day, according to Stuart Culverhouse, chief economist at Exotix Partners, a U.K.-based investment bank.
The country appears to have little room to maneuver if it loses export revenues. Its international reserves briefly dipped below $10 billion in recent days, the lowest in 15 years, according to Venezuela's central bank. But S&P analysts estimated that only about $3 billion was liquid, with the rest in gold.