Jan. 11 (Bloomberg) -- Venezuela’s benchmark bonds soared, sending yields to the lowest level since September 2008, as investors speculated the government’s budget deficit will narrow after President Hugo Chavez devalued the bolivar.

Venezuela’s 9.25 percent dollar bonds due in 2027 climbed 5.55 cents to 84.75 cents on the dollar at 9:15 a.m. in New York, according JPMorgan Chase & Co. The yield on the securities plunged 88 basis points, or 0.88 percentage point, to 11.25 percentage points, the lowest since Sept. 19, 2008.

Chavez on Jan. 8 devalued the 2.15-per dollar exchange rate, setting a level of 2.6 for imports of essential items including food and medicine and a rate of 4.3 for “non- essential” products. He committed to defend the bolivar in the unregulated market, where it traded last week at 6.25.

“The announcement is enormously positive for Venezuelan assets,” Alejandro Grisanti, an analyst at Barclays Capital in New York, wrote in a research note today. “It provides a further signal from President Chavez of his willingness to pay, while improving considerably the capacity to pay,” leading Barclays to maintain its “overweight” position on the nation’s debt, Grisanti wrote.

The devaluation will cut the budget deficit in half by giving the government more bolivars for each dollar of export revenue from state oil monopoly Petroleos de Venezuela SA, according to Boris Segura, an analyst with RBS Securities Inc.

The deficit will equal 3.2 percent of gross domestic product this year, rather than the 7.4 percent of GDP it would have equaled without a devaluation, according to RBS forecasts.

‘Black Friday’

Chavez said the new 4.3-per-dollar exchange rate will curb imports and reduce the economy’s dependence on oil, which has fallen about 40 percent from a 2008 record of $147.27 a barrel. Venezuela is South America’s biggest oil producer.

The three-tiered rate system mirrors the failed policy Venezuela implemented after a collapse in oil led to a devaluation in 1983 that Venezuelans call “Black Friday.” The system helped spark $60 billion of capital outflows from the country, according to Chavez’s Information Ministry.

Chavez runs the risk of creating an inflation surge and swelling corruption, said Ricardo Hausmann, who runs Harvard University’s Center for International Development and served as Venezuela’s planning minister in the 1990s.

The country’s 27 percent annual inflation rate is already the highest among the 78 economies tracked by Bloomberg. Finance Minister Ali Rodriguez, who has been forecasting 2010 inflation of between 20 and 22 percent, said the devaluation may add as much as 5 percentage points to the rate while Chavez, 55, threatened yesterday to seize any stores that raise prices.

To contact the reporters on this story: Michael Patterson in London at mpatterson10@bloomberg.net; Daniel Cancel in Caracas at dcancel@bloomberg.net.