Venezuela's long-dormant bonds have suddenly become the focus of emerging market investors this week.
The price of a benchmark bond maturing in October 2026 has doubled since August, now around 43 cents on the dollar. The drastic change comes after the ouster of President Nicolas Maduro and signals of a U.S. policy shift that paves the way for a restructuring of Venezuela's debt.
Investors have begun betting that a faster-than-expected political transition and a clear path to recovering troubled assets will move the value of bonds that have been locked up for nearly a decade.
Venezuela has defaulted since late 2017 after defaulting on its government and state oil company, PDVSA. Among the largest holders of these bonds are Fidelity Investments and T. Rowe Price.
However, Donato Guarino, a Citi strategist, stressed that uncertainty remains. The main question is how well Venezuela's new government will align with Washington.
According to Guarino, the Trump administration is focused on extracting Venezuela's oil reserves to boost GDP and its ability to pay its bonds. But Trump’s move is a big gamble because the new president’s loyalty to him remains in doubt.
Trump himself recently announced that the US would “govern” Venezuela, threatened Colombia and Cuba, and extended his push to include Greenland. This came after a military coup that seized Maduro from Caracas and brought him to the US to be charged without congressional authorization.
Barclays upgraded Venezuelan bonds to market weight based on the rapid political changes. But it warned that the risks of large and complex debt could add to the burden.
Venezuela and PDVSA’s unsecured debt is now worth $56.5 billion, rising to $98.3 billion including interest, equivalent to 119% of GDP according to IMF projections for 2025.
The bank stressed that the value of the recovery depends very much on how quickly the Venezuelan economy and oil industry recover, especially since the economy is now 30% smaller and oil production has fallen by almost half in the past eight years.
The situation presents a sharp paradox: bonds that were considered junk for years are now a major bet with unpredictable risks. The market is forced to choose between extraordinary opportunities or the still-haunting risk of total failure.
