T. Rowe Price buoyed by Venezuela’s recovery

Venezuela mapVenezuela, an oil producing country that was on the brink of default, has recovered due to a rise in commodity prices that has benefited investors. According to Jeff Kalinowski, emerging markets debt specialist at T. Rowe Price, markets had been pricing in an imminent default in Venezuela since the beginning of this year, underpinning large yields on even short-maturity bonds. One example is state-owned oil producer Petróleos de Venezuela, which in January was offering short maturity bonds with a yield of 54%. Due to the recent rally in oil prices and the government identifying incremental sources of liquidity, the country has made a dramatic recovery. Petróleos de Venezuela bonds yield have now narrowed to 10.48%. “We remain of the view the Venezuelan government is committed to servicing its debt, and further maintain the pockets of liquidity that are necessary to do so,” says Kalinowski, However, he does warn that longer-term, the country still faces a number of structural challenges and without higher oil prices could struggle to maintain liquidity and solvency past 2017. Challenges include high fiscal deficits, an overvalued exchange rate, elevated inflation, and poorly functioning democratic institutions. ©2015 funds europe

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