Turning Neutral Venezuelan Debt

We are turning neutral towards Venezuelan external debt due to a deterioration of the technical picture on the benchmark US$ Global 27 bond and mounting fundamental concerns. We had held a bullish view on the US$ bond since December 2010, based on rising global oil prices and our expectation for a currency devaluation, which took place on January 1. However, this was very much a tactical, short-term play, given that we still expect the government's unsustainable policy mix - which is driving persistent fiscal deficits and a rising debt load - to weigh on the country's sovereign credentials over the longer term.

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