JPMorgan extends Venezuela ‘observation period’ in benchmark bond index

NEW YORK/LONDON (Reuters) – JPMorgan has delayed a key decision on whether to increase the weighting of Venezuelan bonds in its widely followed EMBI index series by a month, with the next update due until Feb. 29.

The move came as the United States reimposed some sanctions on Venezuela after President Nicolas Maduro’s main opposition rival, Maria Corina Machado, was barred from running in upcoming elections over the weekend.

Venezuelan bonds and those of its state oil company PDVSA have had a “zero weighting” in JPMorgan’s influential index since 2019, when Washington barred US investors from trading them as part of a plan to pressure Maduro’s administration.

However, after the US Treasury lifted those restrictions in October, the US bank began a three-month “index watch observation period” in early November to potentially increase the bond’s weighting again.

“Index Watch will be extended and the next update on the Index Watch will be announced before February 29,” JPMorgan said. They also asked index users to give their latest views on the bond.

JPMorgan’s EMBI indices are the main global benchmark for hard-currency bonds issued by emerging market countries. A combined 20 bonds of the Venezuelan government and PDVSA, with a total value of more than $53 billion, are currently included in them.

Morgan Stanley analysts said they still expected a turnaround despite Monday’s delay.

“The base case is that Venezuelan and PDVSA bonds are re-weighted into the index,” he said, estimating that this would be announced “a few weeks after the new deadline of February 29.”

Ted Pincus of Mangart Advisors, a hedge fund that holds Venezuelan bonds, called JPMorgan’s extension “unexpected,” noting that the bonds meet the main requirements for the index…

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