Bank of America anticipates a better scenario for Venezuelan bonds

Growing possibility of devaluation of the local currency and spending cuts have made the Bank of America improve its view of the financial good standing of the Venezuelan government. Therefore, it resolved to put Venezuela's credit landscape over the average of the market weighting.

The financial institution thinks that spending cuts and the funds coming from devaluation widen up Venezuela's future ability to repay the principal amount and interest of its debt represented in the bonds issued by the Republic and state-run oil holding Petróleos de Venezuela (Pdvsa).

According to the Bank of America, Venezuela's public spending has lowered by 13% over the six weeks following the presidential election, and fewer outlays together with a potential adjustment of the exchange rate could reduce the fiscal deficit of the central government from 8.8% of the Gross Domestic Product (GDP) in 2012 to 2.2% next year.

"Venezuela is on track to implement a sizable fiscal and exchange rate adjustment that will strongly improve finances. We recommend a portfolio of short and intermediate bonds, which should gain the most from a devaluation," Bank of America reasoned.

On the rise

News about Venezuelan President Hugo Chávez going to Cuba to continue medical treatment for his cancer has made an impact on the supply of Venezuelan bonds.

Convinced that Chávez could step down because of his disease, as well as of a shift in the domestic economy, investors have taken a step forward by buying Venezuelan bonds, thus raising their value.

Last Tuesday, bonds increased by 2.5 points on average. They would keep on growing on Wednesday, yet modestly, at 0.30-0.36 points.