Venezuela bonds are the hottest trade on Wall Street this week, but risks remain
Demonstrators hold a large Venezuelan flag in front of the National Assembly as US-deposed President Nicolas Maduro appears in a New York court in Caracas, Venezuela, on January 5, 2026, after the Trump administration removed him from power, the day Vice President Delcy Rodriguez was officially sworn in as the country’s interim president.
Maxwell Briceno | Reuters
Venezuela’s long-term defaulted bonds have suddenly become one of the hottest deals in emerging markets.
Prices of the country’s benchmark notes due in October 2026 have more than doubled since August to about 43 cents on the dollar. The rise comes as investors reassess hopes for a recovery in distressed stocks following the surprise impeachment of President Nicolas Maduro and a shift in U.S. policy that has opened the door to a potential restructuring of the nation’s debt.
Investors believe a quicker-than-expected political transition and a clearer path to asset recovery could unlock values that have been frozen for nearly a decade. Venezuela went into default in late 2017 after failing to make payments on foreign bonds issued by both the government and state-owned oil producer PDVSA. According to reports, Fidelity Investments and T. Rowe Price are among those who hold significant amounts of these defaulted bonds.
Donato Guarino, emerging markets strategist at Citi, said uncertainties remain, especially because of persistent questions about the new government’s political alignment with Washington.
“It’s very important for the Trump administration to extract the oil reserves that Venezuela currently has. That means Venezuela’s GDP will go up. That means its ability to pay bondholders will be higher,” Guarino told CNBC. “But you can see some risks in the short term because it’s a big gamble that Trump is making… there’s a question of the current new president’s loyalty to Trump.”
In recent days, Trump has said the United States will “rule” Venezuela, threatened Colombia and Cuba, and renewed his push to buy Greenland. The remarks followed a weekend military offensive in which Maduro was kidnapped from Caracas and sent to the United States to face criminal charges without prior congressional authorization.
Great risk continues
Barclays upgraded Venezuelan bonds to its market weight after rapidly evolving political developments changed its outlook.
The Wall Street firm also warned that the scale and complexity of Venezuela’s debt burden could move upward from here. Venezuela and PDVSA together hold $56.5 billion in unsecured euro bonds, Barclays said. Total bondholder claims, including overdue interest, rise to $98.3 billion, or roughly 119% of GDP, according to the IMF’s 2025 GDP projection.
Recovery values could vary widely, the bank said, noting that Venezuela’s economy is now about 30% smaller and oil production has nearly halved over the past eight years. As a result, the ultimate recovery will depend largely on how quickly the economy and the oil sector can recover in the coming years.
Jeffrey Sherman, DoubleLine’s deputy chief investment officer, believes the rally may be further from reality.
“There’s still a lot of risk there. There’s that kind of continuation of leadership there right now,” Sherman said Tuesday on CNBC’s “Money Movers.” “We’ll see how the transitions play out around elections and other things. So I think it’s too early to get too excited about it, especially as a debt investor.”
The latest developments in Venezuela could also be a big win for Elliott Investment Management, a firm founded by billionaire investor Paul Singer. Less than two months ago, the investor known for making lucrative deals in high-risk markets Won US approval for a $6 billion bid for refinery company Citgo Petroleum, owned by state-run PDVSA.
—With help from Gina Francolla
