Defaulted Venezuelan Bonds Have Climbed More Than 100% This Year As Traders Bet On Regime Change

Traders are increasingly buying defaulted Venezuelan bonds betting that regime change in the country will lead to a new investor-friendly government that will cut a deal to begin paying back the country's debt.

Bloomberg noted that the most widely traded bonds have climbed more than 100% this year, clocking in at more than 30 cents on the dollar compared to 16 cents in January.

The outlet noted that investors who have bet on this trade have been repeatedly burned as authoritarian President Nicolas Maduro manages to retain in power. However, many believe this time things are different as the Trump administration continues its military buildup in the Caribbean and the Eastern Pacific.

Moreover, President Donald Trump has reportedly approved CIA plans to conduct covert operations inside Venezuela, which could potentially pave the way for broader military action inside the country.

The New York Times noted that, at the same time, Trump also authorized back-channel negotiations with the Maduro regime. It added that previous rounds included an offer to have Maduro leave power in two or three years, which was rejected by the White House.

The outlet said it's not clear what the operations might look like, but could involve sabotage, psychological or cyber operations. Trump has not made a final decision on the matter, and officials have also presented options that could see special forces go into Venezuela to try to catch or kill Maduro.

Another plan involves capturing oil fields or critical infrastructure, but analysts and former Venezuelan officials said Russian weapons held by the regime increase the chances of casualties, the outlet said in another report. However, they said, any air defense systems or fighter jets would be destroyed by precision strikes before any operation.

Elsewhere in the report, Bloomberg noted that regime change could help unlock Venezuela's oil wealth and reverse years of economic malaise. At the moment, as pressure continues and sanctions remain, Caracas' tepid economic recovery has seen a reversal and inflation again runs above 100%. The regime has also stopped publishing economic data regularly.

Aaron Gifford, head of global sovereign research at T. Rowe Price, told the outlet that many investors "have been underweight or even zero-weight the name for the last few years as the country was sanctioned and a trading ban was in place." However, it "now seems like many investors are trying to play catchup to not underperform."