Investors chase distressed Venezuela debt as sanctions, uncertainty and restructuring risks pile up
Venezuela’s once‑shunned bonds have doubled since August and are now one of the most aggressive trades in emerging markets, just as Wall Street grinds out new highs on the back of mega‑cap tech.
Prices on Venezuela’s benchmark notes due October 2026 have surged to about 43 cents on the dollar after the surprise removal of President Nicolas Maduro and a shift in US policy, according to CNBC.
Investors are betting that a faster‑than‑expected political transition and a clearer path to restructuring could finally unlock value trapped since the country defaulted in 2017.
Venezuela and state oil firm PDVSA have defaulted on roughly US$60bn of bonds, while total external debt, including bilateral loans and arbitration awards, sits around US$150bn–US$170bn, as per Reuters.
JPMorgan estimates about US$102bn is in bond form and that Venezuela owes China roughly US$13bn–US$15bn in bilateral debt.
Institutional holders include Fidelity Investments and T. Rowe Price, according to CNBC, while Reuters said asset managers such as RBC BlueBay, Canaima, Altana and various US pension funds also have exposure.
Some became effectively locked into positions when US sanctions in 2019 restricted trading.
The trade now hinges heavily on US politics and oil.
After a US military strike captured Maduro in Caracas and flew him to the United States to face criminal charges without prior congressional authorization, US President Donald Trump has declared that the US would “run” Venezuela and has escalated rhetoric toward Colombia and Cuba.
Donato Guarino, emerging‑markets strategist at Citi, told CNBC that “it’s key to extract the oil reserves the Venezuela has at the moment,” arguing that higher GDP would improve the country’s ability to pay bondholders.
He also called Trump’s move “a big gamble” and raised “a question of loyalty of the current new president towards Trump.”
If Trump backs interim President Delcy Rodriguez, the “logical next steps” could include restoring diplomatic relations and expanding licences to allow debt‑restructuring talks, JPMorgan analysts said, as reported by Reuters.
Even after the rally, large institutions warn that the risk–reward may already be stretched.
Barclays upgraded Venezuela’s bonds to market weight after the political shock, but also warned that the sheer size and complexity of the debt pile will likely cap further upside, according to CNBC.
CNBC added that Venezuela’s economy is about 30 percent smaller than eight years ago and oil output has nearly halved, which makes eventual recoveries highly dependent on how quickly both rebound.
Citi analysts told Reuters they expect a “multi‑track, multi‑year” settlement because of the huge debt stock, fragmented creditors and US sanctions.
They compared the likely complexity to Greece’s 2012 restructuring.
In their base case, as per Reuters, Venezuela would impose a 50 percent principal haircut, then offer a new 20‑year bond plus a 10‑year zero‑coupon bond for missed interest since 2017.
Citi assumes debt must fall to about 85 percent of GDP from almost 175 percent and estimates that, if 14 percent of oil revenue goes to external debt, the new bonds could pay around 4.4 percent.
Alejo Czerwonko, CIO for emerging markets Americas at UBS Global Wealth Management, told Reuters that persistent political uncertainty, a likely long and complex restructuring, and limited visibility on repayment capacity will probably restrain prices.
Despite Maduro’s removal, key constraints remain.
US sanctions, including measures against interim President Rodriguez, mean that even starting talks with creditors could breach US Treasury rules.
Graham Stock of RBC BlueBay Asset Management told Reuters he does not expect meaningful progress “inside a couple of years,” citing political uncertainty, missing economic data, and the complexity of PDVSA’s oil‑backed deals with China.
Sovereign restructurings often hinge on an IMF programme, but the IMF has not published a full assessment of Venezuela since 2004..
Some investors told Reuters they expect the US to effectively backstop the process instead.
Ed Al‑Hussainy of Columbia Threadneedle Investments said the US administration has an interest in pushing restructuring forward because US oil companies cannot invest at scale without a deal.
He added that a US credit line, guarantee or backstop would be “music to the ears” of investors.
Lee Robinson of Altana Wealth told Reuters there is enough at stake for Washington to put up a loan to jump‑start Venezuela’s recovery.
JPMorgan said that if the Trump administration formally recognises Rodriguez’s government, the US could pursue an oil‑based bilateral programme that bypasses the IMF and leads to a faster but less orthodox restructuring than those seen under the Common Framework.
At the same time, Christopher Sabatini of Chatham House told Reuters that heavy US involvement raises questions about whether Trump might try to favour US‑based financial firms over London hedge funds.
Several voices are warning that price action is front‑running politics.
Jeffrey Sherman, deputy CIO at DoubleLine, told CNBC there is still “a lot of risks,” pointing to the ongoing leadership transition and talk of elections. He said it is “way too early to get too excited” from a debt investor’s standpoint.
Gramercy CIO Robert Koenigsberger told Reuters that sanctions must change first and that any easing will likely be incremental, making a restructuring deal this year “highly unlikely.”
Eileen Gavin, head of sovereign analysis at Verisk Maplecroft, told Reuters that optimism may be premature, calling the situation “very high risk and very unpredictable” and saying Venezuela’s ability and willingness to pay remain “highly constrained.”
Reuters also noted that oil output has fallen from more than 3.7m barrels per day in 1970 to below 1m barrels per day after years of mismanagement and under‑investment.
There is no clear timeline for elections, no certainty over whether Maduro loyalists will try to disrupt the new government, and no visibility on Trump’s next steps.
“The biggest risk is purely political,” Celestino Amore, co‑founder of the Venezuela‑focused Canaima Global Opportunities Fund, told Reuters, adding that “this is not an investment for the faint‑hearted.”
