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JPMorgan to Add Venezuelan Bonds Back Into Its Emerging Market Indexes – WSJ

The bonds include debts issued by state-owned oil company Petróleos de Venezuela. Pictured is a sculpture outside of the company’s headquarters in Caracas, Venezuela. Photo: Matias Delacroix/Bloomberg News
The return of Venezuelan bonds to JPMorgan’s widely tracked indexes follows a reversal of U.S. sanctions on buying Venezuelan debt . The bonds include debts issued by state-owned oil company Petróleos de Venezuela. Pictured is a sculpture outside of the company’s headquarters in Caracas, Venezuela. Photo: Matias Delacroix/Bloomberg News

Alexander Saeedy, WSJ

NEW YORK
Energiesnet.com 02 23 2024

Venezuelan government bonds are returning to JPMorgan Chase’s largest index of emerging-market government bonds, a move likely to boost demand for the bonds among fund managers that use the bank’s widely followed benchmarks.

JPMorgan said on Thursday that it would bring Venezuelan government debt back into the bank’s flagship emerging-market index, the EMBI Global Diversified Index, as well as one of its other benchmarks, the EMBI Global Index. The bonds, including Venezuelan sovereign debt and debts issued by state-owned oil giant Petróleos de Venezuela, were removed from JPMorgan’s indexes in 2019 after the U.S. outlawed American investors from purchasing Venezuelan bonds.

The move reflects how Venezuela is reintegrating with global financial markets since the U.S. repealed a number of sanctions on the South American nation last year. Officials from the Biden administration agreed to strike down a ban on buying Venezuelan debt after Wall Street funds warned that American adversaries like Russia were using the debt bans to gain influence over the Venezuelan government.

Emerging-market fund managers that track JPMorgan’s indexes are likely to buy Venezuela’s debt to ensure they don’t underperform relative to their peers. Some of Venezuela’s bonds trade as low as 10 cents on the dollar, and they have room to trade higher if diplomatic relations between Venezuela and the U.S. improve.

JPMorgan estimates that as much as $367 billion of assets track its EMBI benchmarks, mostly through its EMBI Global Diversified Index. 

“Any funds that don’t go at least market-weight are taking a significant risk to underperform the indexes,” said Hans Humes, chief investment officer at Greylock Capital and co-chair of a committee of creditors holding around $11 billion in Venezuelan sovereign debt.

JPMorgan first said it was considering adding the bonds back into its benchmarks in November 2023, weeks after the Biden administration rolled back an array of sanctions on the Venezuelan government. 

Even though some of those sanctions have come back or are set to return later this year, U.S. officials have signaled that the debt ban isn’t likely to come back. 

“If the weighting of Venezuela and Petróleos de Venezuela’s bonds in the index was taken to zero because of the trading ban, it stands to reason the weighting should be raised after the ban has been lifted,” said Humes. 

Venezuelan sovereign bond prices jumped around four points higher immediately after the news of JPMorgan’s move broke on Thursday, according to traders.

JPMorgan said 20 Venezuelan sovereign and quasi-sovereign bonds valued at some $53 billion will be phased in over a three-month period beginning at the end of April. In total, Venezuela’s bonds will account for 0.7% of the EMBI Global Index and 0.6% of the EMBI Global Diversified Index, which track a variety of dollar-denominated emerging-market sovereign debts.

JPMorgan said the bonds won’t be added into its EMBI Core index, which is tracked by a number of exchange-traded funds that offer investors exposure to emerging-market debt.

Write to Alexander Saeedy at alexander.saeedy@wsj.com

wsj.com 02 22 2024

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