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JP Morgan Expect $1bn Of Flows To Venezuela On Bond Index Inclusion

LATAM
  • JP Morgan’s decision to include Venezuela sovereign and PDVSA bonds back in the EMBI Global/Diversified benchmarks is expected to result in close to $1bn of flows towards Venezuela. The bonds will be included in the benchmarks over a three-month phase-in period starting April 30, with a total estimated weight of 0.58% at the EMBIGD level and 0.69% within the EMBIG. In terms of spreads, JP Morgan expect the inclusion effect to lie around 59bp over the current headline spread number.
  • JP Morgan said on Thursday that twenty bonds, between VENZ and PDVSA, representing a total notional value of $53bn will be phased into the flagship EMBIG/EMBIGD indices. Unlike the two flagship indices, the EMBIG CORE Index will not include Venezuela. Based on their latest EM client survey, JPM would have expected close to $2bn of flows. However, they expect flows to be only half of this, due partly to buying since October in anticipation of possible index inclusion.
  • JP Morgan note that the index inclusion announcement led to a bounce in intraday prices across the Venezuela complex of over 2pts, suggesting that the decision was only partially priced in. They think additional momentum from here will depend on the still uncertain election outlook and what political developments would mean for actual bond restructuring in the medium term.
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