Sovereign Debt

Confusion reigns. Venezuela might plan to default, but maybe it's just pretending so it can buy bonds back on the cheap.

The news out of Venezuela with regards to its debt situation has been keeping investors (who love the high returns, but dislike the uncertainty) in a tizzy, to put it mildly. But today's news was perhaps the most bizarre yet.  Mr. Maduro, on the one hand, announced that PDVSA (the big state-owned oil company that produces 95% of Venezuela's foreign currency earnings) was making its latest payment to creditors (due today) and, on the other hand, announced that a restructuring was being planned immediately.

What? Why? How?

Bond pricing has always been a puzzle to me, so I leave it to Mitu. But one thing has bugged me for more than a year. Ever since Venezuela has joined the ranks of the walking dead, market participants have differentiated among its bond contracts in a way that might seem sensible--even sophisticated--to those who think that investors do (or should) occasionally read the small print.

From Joseph Blocher & Mitu Gulati

We are about to hit an anniversary of sorts, a year since Venezuela was surely going to default on its debt ... except that it still hasn't, so the U.S. government has decided to nudge it along.