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NEW YORK, Feb 26 (IFR) - PDVSA 2016s rallied on Friday as investors bet on a higher likelihood of short-term debt payments following a surge in oil prices and reports that Venezuela had retired a maturing bond.
PDVSA's 5.125% 2016s were being quoted at 73.75-75.75, marking a nearly five point leap since Wednesday's close.
"Everyone is looking to buy PDVSA 2016s, but holders are not inclined to let the bond go at these levels," said a New York based broker.
"The paper doesn't pay principal until the fourth quarter, so if you sell at these levels you are leaving a lot of principal on the table."
A US$25.63m coupon payment is due on the PDVSA 2016s on April 28 followed by an approximately US$1.025bn interest and principal payment on October 28.
Although local reports about a US$1.543m payment on the sovereign's 2016s maturing on Friday were widely expected, the news brings some relief to a market concerned about a default scenario this year.
One holder of the Venezuela 2016s said he had yet to receive payment confirmation, but typically it takes a couple of days to reach bank accounts.
"By Monday it will be there. I don't expect them not to pay," the investor said, noting that the bonds were being quoted at par." We would have heard by now if they didn't pay."
A surge in crude prices on Friday only encouraged investors to take short-term bets on a country that relies on oil sales for almost all its export earnings.
"If you have been a brave soul holding Venezuela 2016s, you could roll over that money into the next bond that has the greatest upside payoff," said Michael Roche, EM fixed-income analyst at the Seaport Group, talking about the PDVSA 2016s.
Settlement with US based Gold Reserve Inc over prior expropriations is also supporting prices as Venezuela is expected to receive a US$2bn loan from the deal and it opens the prospects of more investments in a sector other than oil.
Longer-term however the market continues to take a pessimistic view on the prospects of a possible credit event for the country.
PDVSA's 5.25% April 2017s and 8.5% November 2017s are still trading well inside distressed territory at 46.35-47.15 and 50.15-50.75, respectively, according to Thomson Reuters data.
PDVSA is reportedly talking to banks about refinancing short-term debt maturities, a move that would give the country substantial breathing space. But pulling off such a liability management transaction may be tough, not to mention expensive.
"We cannot rule out that Venezuela may survive another year of debt repayments but it is a highly unstable equilibrium that influences both the ability and willingness to pay," Siobhan Morden, head of Latin America fixed-income strategy at Nomura, wrote on Friday. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)