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Investors bet on Chavez: Big money in Venezuelan bonds?

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• A version of this post ran on the author's blog. The views expressed are the author's own.

During the last few weeks, Venezuela and [state-owned oil company] PDVSA bonds have rallied sharply, as investors see increased probability of not only a possible political change in the country, but more importantly, change in the way Venezuela’s public finances are managed.

The rally has been stupendous [see graphs in original post], which shows the price of PDVSA’s 2022 bond, which carries a 12.75 percent coupon and which was issued in February of 2011.

The bond described above has shown three distinct periods over the last year. First, there was rally last June, when President Hugo Chavez became sick. This rally stopped from August to November as the European crisis unfolded. Then, the last and powerful leg this year began in January, as optimism all around the world first drove markets up, which was followed by a further move up upon the successful opposition primaries, which then received another powerful push up with the news that Chavez’s cancer had returned and the President had to have an operation.

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