Bonds News

Venezuela bonds rally as banks reopen after holiday

* Venezuela’s benchmark bond rallies 3.2 percent in price

* Currency rate in parallel market is steady

* State oil company PDVSA bonds flat after Monday rally

CARACAS, Dec 8 (Reuters) - Venezuelan government debt rallied for a second day on Tuesday and bonds for state oil company PDVSA steadied as local banks appeared to reopen smoothly after a market holiday and last week’s bank closures.

The cost to insure Venezuela’s debt against default fell by about 3 percent, Markit said.

The parallel bolivar currency rate was steady at about 5.95 , traders said, about the same rate to buy dollars as Friday at the end of a tumultuous week in the country’s financial sector.

Banks were closed Monday for a Roman Catholic holiday.

On Tuesday, eyewitnesses reported no lines of panicked depositors at banks like during last week, when the government shut four banks on Monday and three more on Friday, saying it wished to “rehabilitate” or “fix” them. The banks accounted for about 8 percent of total Venezuelan deposits.

On Tuesday, Venezuela's benchmark dollar-denominated global bond due 2027 VENGLB27=RR rose 2.250 point, or 3.3 percent, to bid 70.500, yielding 13.764 percent. If the bond closes at that level, it would be biggest one-day percentage rise since Aug. 27.

Last week, the 2027 bond, one of the emerging market’s most traded bonds, fell nearly 9.5 percent, its sharpest weekly decline in a year, as socialist President Hugo Chavez twice threatened to nationalize the entire private banking system.

“The situation in the financial system seems to be calming down as the recent public statements from government officials are definitely more constructive (less threatening and alarmist),” wrote Goldman Sachs analyst Alberto Ramos, based in New York.

In Caracas, two Venezuelan bankers said financial sector tension had abated, particularly after Chavez praised some big private banks on Monday for helping the government administer the transfer of deposits out of the closed banks.

“The atmosphere is more relaxed,” said one banker, referring to the parallel currency market, where Venezuelans turn to buy dollars when they can’t get them at the official rate of 2.15 bolivars to the dollar.

“We think that the government and the central bank have the tools to avoid a self-provoked financial crisis,” wrote Credit Suisse on Tuesday. “We are targeting a recovery of Venezuelan bonds to pre-banking crisis levels.”

On international markets, the annual cost to insure Venezuelan debt fell by 3.2 percent to about 26.4 percent of the face value of the debt, based on a Markit index of credit default swaps.

Another risk gauge for Venezuela also fell, that of yield spreads between the country's bonds and U.S. Treasuries, as gauged by JP Morgan's Emerging Markets Bond Index Plus (EMBI+) 11EMJ.

It showed yield spreads on Tuesday narrowed by 13 basis points to 1163 points. Bond returns rose 0.57 percent, the EMBI+ showed.

The second biggest Venezuelan debt issuer after the government is state-owned company, PDVSA, which has issued $12 billion in dollar-denominated bonds since 2007.

On Monday, three of its benchmark bonds, maturing in 2017 VE029436410=RRPS, 2027 VE029436495=RRPS and 2037 VE029436720=RRPS rallied in price by 3.7 percent, 2.4 percent and 3.1 percent respectively. On Tuesday, the 2017 bond rose 0.117 point to bid 50.962, offering a yield of 17.293 percent, and the others were unchanged in trading.

The Monday rally followed a Reuters story late Friday saying a PDVSA source repurchased up to $600 million in a plan to clear debt owed to suppliers and contractors [ID:nN06142115].

On Tuesday, Credit Suisse recommended investors buy the PDVSA 2017 bond , noting its yield was higher than government bonds.

“Because of the critical importance for the state to maintain producion and investment at PDVSA, we think the probability of selective default on PDVSA’s bonds is not very large,” it said. (Additional reporting by Ana Isabel Martinez; Editing by Andrew Hay)