Venezuela's Bonds Tumble After Chavez Expels U.S. Ambassador

Venezuela's bonds plunged to the lowest since July 2004 after President Hugo Chavez called for the expulsion of the American ambassador and threatened to cut off oil exports to the U.S. The yield on Venezuela's benchmark 9.25 percent securities due in 2027 jumped 36 basis points, or 0.36 percentage point, to 11.1 percent at 11:30 a.m. in New York, according to JPMorgan Chase & Co. The bond's price dropped 2.5 cents to 85.5 cents. Investors dumped Venezuelan debt as Chavez also recalled his ambassador from Washington yesterday in a show of support for his Bolivian counterpart Evo Morales. A day earlier, Morales expelled the top U.S. envoy after accusing him of backing regional leaders seeking more autonomy. The U.S. is the biggest buyer of Venezuelan oil, which accounts for 90 percent of the South American country's exports. Chavez's actions ``usually wouldn't matter, but in this environment it makes people even more scared about Venezuela,'' said Edwin Gutierrez, who manages $5.5 billion in emerging-market debt in London at Aberdeen Asset Management. Concern that New York-based Lehman Brothers Holdings Inc. may collapse has led investors to shun emerging-market debt, including Venezuelan bonds, in recent days. The extra yield investors demand to own Venezuela debt instead of U.S. Treasuries swelled 15 basis points today to 7.39 percentage points, according to JPMorgan. The so-called spread is the widest since May 2004. The spread on emerging-market debt overall narrowed 5 basis points to 3.3 percentage points.