March 14, 2006
Venezuelan bond yields to rise, InterAcciones says

(Bloomberg) - "Venezuelan local-currency bond yields will probably rise in the first half of this year as central bank efforts to slow money supply growth damp demand for debt, said Luis Richard at InterAcciones Casa de Bolsa.

Commercial banks had to place 5 percent of money market deposits on reserve with the central bank by March 6 and have to place 15 percent on reserve by the end of the year. The move, part of the central bank's effort to reduce the money supply and curb inflation, has cut demand for the government's benchmark 91- day bills, Richard said.

'The reserve requirement has helped keep liquidity in check, which should ease demand for debt,' Richard, the head of trading at the brokerage, said in a telephone interview from Caracas. 'The government is worried about inflation so they don't want liquidity to get out of control.'

The supply of bolivars in Venezuela's markets has more than quadrupled in less than three years as the government converted record tax revenue from oil exports into bolivars and boosted spending 43 percent last year.

The money supply has fallen 3.9 percent since Dec. 23 in part because of the new reserve requirement, which comes in addition to 15 percent reserve requirements on checking and savings accounts, Richard said.

The yield on Venezuela's three-month bills rose to a two- month high of 7.2 percent at the last auction on March 7 after reaching a record low of 5.96 percent on Jan. 31. The yield has fallen from 44 percent in January 2003, when the government set restrictions on U.S. dollar investments, which boosted demand for local-currency denominated debt.

The government plans to offer 80 billion bolivars of 91-day bills at an auction today.

The central bank forecasts inflation will slow to within a range of 11 percent and 12 percent this year from 14 percent last year".