Back in November, Venezuelan President Nicolás Maduro boldly proclaimed, “Venezuela will never get to a default.” This was a bold claim for a country already having trouble paying its bills, but also pretty par for the course for cash-strapped South American demagogues. What’s even more remarkable is that Venezuela’s bondholders continued to believe him for so long.
Traders debated for weeks about whether to continue pricing the oil-rich country’s sovereign debt with the assumption that it would keep making interest payments. But as the pile of unpaid coupons racked up, the association for emerging market debt traders this week threw in the towel and announced that from now on, the market should assume Venezuela isn’t likely to pay.
OK, so it’s a default, and Venezuela is the new Argentina, right? Well, maybe, but not exactly, but probably, because words don’t mean things anymore.
The country is behind on several payments, particularly for its sovereign bonds. But some payments have been arriving late and the country has not said it plans to default on its debt. The situation has made it difficult for traders to determine if bonds should trade as if the country is in default or as if they will keep paying….
On Wednesday, S&P Global Rating issued a default rating on Venezuela’s bond due 2020 after it failed to pay $45 million due to bondholders within a 30-day grace period. The firm said the sovereign is now in overdue for payments on eight different bonds.