In the south...

The new issue of the “bond of the south” being launched on Monday might look like a streamlined, new-fangled derivative product but in reality it is a much more clunky contraption, designed, fundamentally, to ease growing inflationary pressure in Venezuela and win President Hugo Chávez important political support in the region. The new $1.5bn issue of the “bond” (the first issue was launched last year) is really a wrapper that brings together two equal quantities of very different instruments. First, there are Argentine dollar-denominated bonds – known as Bodens – that the Venezuelan government has already bought and is now reissuing to local investors. Second, there are relatively low-yielding Venezuelan local currency “covered interest and capital titles” that are indexed to the official Bolivar exchange rate and provide investors a hedge against a future devaluation. Local investors have to buy the two together but once they own the package they are free to sell off its component parts separately.