The recent rally in Venezuelan government bonds, on the back of speculation that the deteriorating health of President Hugo Chávez will lead to a shift towards more market friendly policies, stands in sharp contrast to the fall in the black market value of the currency. We suspect that the bond markets are being too sanguine on the prospects for reforms. Even if there is a change in government, the economy is suffering from deep-seated problems and any transition is unlikely to be smooth.
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