JPMorgan extends Venezuela’s ‘watch period’ in benchmark bond index

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

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

Venezuela’s bonds and those of its state oil firm PDVSA have had a “zero weighting” in JPMorgan’s influential index since 2019 when Washington banned U.S. investors from trading them as part of a plan to put pressure on Maduro’s administration.

October’s removal of those sanctions by the U.S. Treasury, though, saw the U.S. bank launch a three-month “index watch observation period” in early November to potentially raise the bonds’ weightings again.

“The Index Watch will be extended further and the next update on the Index Watch will be announced no later than February 29th,” JPMorgan said, also asking index users to give their latest views on the bonds.

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

Analysts at Morgan Stanley said that they still expected the changes to happen despite Monday’s delay.

“The base case remains that the Venezuela and PDVSA bonds are re-weighted in the index,” they said, predicting it would be announced “a few weeks after the (new) February 29 deadline”.

Ted Pincus at hedge fund Mangart Advisers, which holds Venezuelan bonds, called JPMorgan’s extension “unexpected” given that the bonds meet the main requirements for index re-weighting, such as being freely-traded in the open market.

“Political volatility is part of EM investing,” Pincus said.