Blain’s Morning Porridge Jan 6th 2026: Venezuela Bonds – are you a buyer or seller?
“A land of passion and contradictions, where the past and the future collide.”
Venezuela bond prices have spiked higher on expectations of new investment, debt restructuring, and the monetisation of its oil resources. But how likely is it the nation can be reformed, attract new money, and satisfy the population while the old regime remains in place, and Washington demands to be paid?
The critical difference between a stock trader and a bond trader is the latter is a pragmatist dealing on facts and probabilities, while the former will happily believe six improbable things before breakfast. Bond prices reflect reality. Stock prices are not set by uncommonly good sense but by the gullibility of equity buyers to believe fairy stories… (Hence Elon Musk’s success – he’s not much of an engineer or inventor, but a marketing whizz who has convinced investors he’s got the ability to deliver rounder wheels.)
Sometimes the cold logic of the bond market and the confabulations of stocks collide – as they apparently did yesterday in the market for Venezuela Bonds.
The price of the nation’s debt saw spectacular gains on the wake of President Trump’s new approach to Strategic Country Acquisition – Gorilla Style: bump off the top guy, threaten the rest and watch them to fall into line. (That’s the hope – we shall find out how the actuality plays out in coming weeks and if the “regime” behaves as Trump demands.)
Distressed EM debt is always interesting. It all about gaming possibilities, prospectuses, and the prospects for change. It can be a murky business. There is “said-to-be” an unground railroad of Russian debt being sold to dubious investment desks in Central Asia, from where the bonds are on-sold at deep discounts to Russian oligarchs looking to deal them to Putin in return for influence and patronage.
The benchmark Venezuela bonds (debt issued by the national oil company PDVSA, Petroleos de Venezuela) due 2037, spiked up 11 points to 31 cents on the dollar yesterday. In the past year the VENZ 9.25% bond due 2027 have traded up from 15 cents to 41 cents!
Such gains have made Venezuela sovereign debt the top performing distressed emerging debt market last year – largely on expectations the new Trump administration would force the Maduro/Chavez regime into some form of engagement which would lift sanctions and trigger new investment. (Thought intrusion moment: what’s the difference between an “Administration” and a “Regime”?)
For the last decade smart distressed debt players have been gaming possible VENZ bond work outs and scenarios to extract maximum value from the nation’s tangled debt web through complex workout committees and discussions. Outstanding sovereign and sovereign linked debt is around $60 bln, and it’s been in default since 2017. A further $100 bln in other bilateral and claims is said to be outstanding – including much owed to China and Russia. That’s 180% debt to GDP – clearly unsustainable for a nation in near economic collapse.
There has been good money made trading Venezuela Debt; EM investor Elliot will make out like proverbial bandits from their holding of the unique PDVSA 2020 bonds which are backed by the stock of US distributor CITGO. (Yesterday, a few clients were asking if I have any insights or access to VENZ bonds. Yes, I have contacts who do – if you a buyer or seller… I got my broker hat on…)
Yesterday Venezuela and the oil co bonds spiked higher following Trump’s Grab and Go of President Maduro. The spike was fuelled by expectations of regime change, and how US investors and oil companies taking over the nation under Trump’s banner will result in favourable debt restructuring agreements on the back of new oil investments, sanctions being lifted and new political stability. Everyone is a believer…
The expectation is that Venezuela will do the “smart thing” and work closely with Trump’s chums in the oil business to increase production, and thus enable the nation to reach a debt market settlement with creditors – probably a 50% haircut and some zero-coupon bonds thrown in.
But… If… if I took a cold hard look at Venezuela today, what would I see?
My first question would be: Do Tigers change their stripes? The biggest risk is Trump’s blithe assumption the mechanisms and enforcers of the Maduro/Chavez regime will fall in line behind Trump’s objectives, becoming a US client state in return for remaining in power, and opening the economy to US Big Oil and Investment.
Such a plan ignores the basic lessons of corrupt vs legally based societies – power corrupts and is seldom willingly surrendered. If you leave a bunch of thugs in charge of the nation then they, and their mancherons – including the army – will continue to chip away at the economy, demanding facilitation payments, making it decreasingly efficient. Money invested will be subject to ongoing corrupt frictions – discouraging new investments.
Countries are improved by reform, not enabling and reinforcing the same crowd that busted it! (Regime change is messy – we’ve all seen how failures of physical regime change from Iraq, Libya and Afghanistan created more destruction than their predecessors!)
It will be interesting to hear what proposals Trump and his “administration” have for curing rampant corruption in Venezuela. Still nothing on how he intends to restore democracy or engage with the opposition – which likely won the last election! Opposition leader Maria Corino Machado has even offered to share her Nobel prize with Trump, but the phone still hasn’t rung!
Venezuela may hold the world’s largest proven oil reserves – but its oil infrastructure is effectively broken and busted. It would be safe to assume that harvesting the oil would require massive new investment in new facilities (numbers of $100 bln plus were being bandied about yesterday) in a market where the price of oil remains low and debatable. (No one is talking Net Zero today… but a few rogue storms and climate events could see sustainability become an issue again.)
Then there is the issue of ongoing political stability. Let’s assume there are free elections at some point. How effectively will any new “regime” be able to sell the de facto sale of its oil resources to US Oil Majors to the electorate? Largest oil reserves on the planet, and all the profits flow to Washington? That will be…. “interesting”.
I suspect Venezuela will remain work in progress for some considerable time – longer than the current bond spike anticipates.
Out of time and back to the day job….
Bill Blain
CEO – Windshift Capital
Author – The Morning Porridge
Partner – Shard Capital
Special Advisor – Spitfire Strategic Capital
