CARACAS, Oct 28 (Reuters) - Venezuelan debt rose on Tuesday following reports that state oil company PDVSA paid off a $3 billion bond that had matured, helping drive optimism after months of default concerns.
Bondholders and traders who hold Venezuelan bonds reported that PDVSA paid off its 2014 bond. That news helped push Venezuela’s overall bond index up 4.8 percent from Monday’s close, compared with a 0.26 percent rise for the overall emerging market index, according to JPMorgan data.
“Holders of Venezuelan bonds are seeing the money in their accounts and that’s driving optimism,” said Francisco Ghersi, director of the local Knossos Fund, which invests only in Venezuelan debt.
PDVSA did not immediately respond to requests for comment. Euroclear, the international settlement bank that intermediates the transaction, declined to comment.
PDVSA’s benchmark 2022 bond was up 3.1 points while Venezuela’s benchmark 2027 ticked up 0.5 point.
Also boosting optimism was the announcement over the weekend that PDVSA was scrapping a planned sale of U.S. refining subsidiary Citgo. Bondholders had worried that the sale would make it more difficult to recover funds in the event of a default.
“It’s a relief rally we expected from the payment, but also from the fact that (Citgo) will no longer be removed from the potential recovery value of Venezuela bonds,” said Russ Dallen, head of Caracas Capital Markets.
Despite government assurances it will honor commitments, investors have worried in recent months that Venezuela may halt payments on foreign debt to protect dwindling foreign reserves that have been hit by declining oil prices.
PDVSA’s sizeable social spending and heavy involvement in government policy have led investors to see its default risk as inextricably linked to that of the government as such.
Yields on some sovereign bonds this month have reached close to 30 percent, more than triple the yields of bonds of war-torn Iraq. On Tuesday, the highest yielding bonds were the PDVSA 2017 at 27.7 percent and the Venezuela Global 2016 at 22.8 percent. (Reporting by Brian Ellsworth and Corina Pons; Editing by Leslie Adler)