BofA Says Chavez Defeat Bets Are Overdone in Bond Market [View all]

[joshcryer]

BofA Says Chavez Defeat Bets Are Overdone in Bond Market
Bank of America Corp. recommended selling Venezuelan bonds, saying that their rally shows investors are overestimating the chances that President Hugo Chavez will lose this month’s election.

Bank of America cut Venezuelan bonds to underweight two weeks after JPMorgan Chase & Co. lowered the country’s debt to marketweight from overweight. Bank of America told clients to sell dollar bonds due in 2028 and 2034, saying they’ve become expensive. Yields on the bonds due 2028 have plunged 2.25 percentage points since the end of June to 10.62 percent and touched a four-year low of 10.54 percent yesterday.

Chavez is likely to defeat opposition candidate Henrique Capriles Radonski in the Oct. 7 vote and could win by a wide enough margin to give him room to pursue “more radical policies,” Bank of America analysts led by Jane Brauer wrote in a report. Chavez’s nationalizations of utilities, banks and other companies as well as his implementation of currency and price controls have helped make Venezuelan bonds the highest- yielding securities among major Latin American countries.

“We see many investors holding overweight or market weight positions going into the election, believing that the upside is very large if Capriles wins and that the downside is manageable if Chavez wins,” the analysts wrote. “A selloff could occur if President Chavez wins re-election by a wide margin.”

Bank of America backs Chavez. Rich isn't it? Chavez the anti-imperialist.