A series of policy flip-flops between the US and Venezuela is hitting the nation’s bond market with a fresh bout of volatility, forcing investors to recalibrate bets on the outlook for a $60 billion debt restructuring.

Government notes — in default since 2017 — have alternated between days-long rallies and sharp selloffs over the past month as money managers parse announcements by President Donald Trump and his Venezuelan counterpart Nicolas Maduro. The latest, in which Venezuela agreed to restart repatriation flights from the US, was seen as Maduro acquiescing to one of Washington’s top agenda items — migration from Latin America. 

That decision, announced Thursday, fueled a third positive day for some bonds and added to a wild run this year. Investors are clinging to hopes that Trump will ultimately soften his stance toward Maduro, a longtime adversary, opening the path for the country to normalize international relations and embark on what’s expected to be one of the largest and most complex debt reworks in the developing world. 

Bonds due in 2027 are up more than 17% this year — far outpacing the 2% gain for an index of emerging-market, high-yield debt. The rally has held up even after Trump shocked markets by ending a Biden-era oil deal that allowed Chevron Corp. to pump oil in Venezuela.

“Volatility is the name of the game under Trump,” said Guillermo Guerrero, a strategist at EMFI Securities. “The bonds have not fully backtracked their recent gains, which implies that there is still an expectation of more twists in the road ahead.” 

Trump’s return to the White House kicked off a period of optimism for the beleaguered market, with investors rushing to scoop up government and state oil company bonds — which are among the cheapest in emerging markets. A change in policy with the new administration, they wagered, would result in a lifting of economic sanctions, ultimately leading to a debt rework and a big payout on their lottery ticket-like bets. 

The case got a boost in late January when Richard Grenell, the US envoy in charge of special situations, flew to Caracas and struck a deal with Maduro, securing the release of American prisoners held in the country. The bonds due in 2027 — which are among the most liquid — rose to nearly 22 cents on the dollar for the first time in a year, according to indicative pricing compiled by Bloomberg.

Trump brought the rally to a screeching halt with his unexpected decision last week to revoke the Chevron license. The permit allowed the US driller to pump oil despite the sanctions.

Prices have since stabilized at around 19 cents on the dollar this week as investors wait for the back and forth to play out. Barclays on Thursday kept its market-weight recommendation on the debt due, in part, to the difficulty in assessing the likelihood of a political transition, according to a note to clients.

“Trump does not appear ideologically wedded to his positions,” said Jason Keene, a strategist at Barclays. “He can definitely turn around and make a deal at a different point in time.”

A recent rally in Lebanon bonds is also providing support, as it makes debt from the government and state-owned oil company Petroleos de Venezuela SA look cheap, Keene said. 

For Francesco Marani, who holds and trades Venezuela and PDVSA debt for Spanish-based Auriga Global Investors SV SA, the recent back-and-forth between Washington and Caracas has done little to change his view that “normalization is the most likely outcome.” 

“Regardless of the threat to oil licenses, the market has proved to be really solid,” he said. “Investors seem to believe that normalization is more likely than a disruption of the relationship.” 

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