(Bloomberg) -- Venezuelan bonds rose sharply after the Biden administration allowed US investors to buy the notes for the first time in four years as part of a sweeping sanctions relief package. 

Government bonds jumped about 10 cents on Thursday to trade at 20 cents on the dollar, while notes of the state oil company, PDVSA, due in 2026 doubled to around 15 cents, according to traders. 

The rally demonstrates how demand has risen for the ulta-cheap, defaulted debt amid speculation that US-Venezuelan political relations would eventually normalize, allowing the nation to restructure and settle with creditors. It has been in default for six years, with some bonds sliding as low as 2 cents on the dollar last year. 

“The lifting of the trading ban is likely to unleash significant pent-up demand from US persons,” London-based EMFI’s senior strategist, Guillermo Guerrero, wrote in a note.  “This, alongside the general optimism that these developments will inevitably bring, guarantees a significant rise in bond prices.”

On Wednesday, the US Treasury lifted a ban that prohibited US investors from trading the debt in the secondary market. The move was part of a broad set of measures that eased sanctions on oil, gas and gold production to encourage President Nicolas Maduro to hold free elections next year. 

The moves effectively reverse several economic sanctions enacted by former President Donald Trump in 2019 as part of the effort to cut off Maduro from international capital markets and force him out of office after his reelection in 2018 was deemed illegitimate. Four years later, however, Maduro is still in power and US firms argue the ban has only pushed the debt into the hands of foreigners. 

“The trading ban never made sense,” said Hans Humes, chief executive officer of Greylock Capital Management LLC in New York, a bondholder and member of the Venezuela Creditor Committee, which lobbied the Biden administration for the change. “In this period of time, the ban damaged US interests and Venezuelan interests.”

Read more: Venezuela Oil, Bond Sanctions Eased in US Bet on Free Elections

Sanctions that prohibit Venezuela and state driller Petroleos de Venezuela SA from selling new debt in the US remain in place. Investors who hold the debt said they expect prices to continue to rise after the new rules become clear. 

“To have a proper market, we need US funds fully involved. It will take a few days due to compliance clearance,” said Claudio Zampa, founder of Switzerland-based Mangart Capital Management Ltd.

One PDVSA note, which matures in 2020, rose to 66 cents on the dollar from around 56 cents, according to data compiled by Bloomberg. Those bonds are backed by Venezuela’s US-based refiner Citgo Petroleum.

Venezuela started defaulting on roughly $60 billion of sovereign and PDVSA bonds starting in 2017. Two years later, Trump cut diplomatic ties with Maduro.

What Bloomberg Intelligence says:

“Sanctions relief that results in a sustained recovery in the company’s oil and gas production has the potential to drive outsized longer-term returns for the oil company’s and Venezuela’s bonds.”

- Jaimin Patel, senior credit analyst

- Click here to read full report

Biden had previously loosened a handful of sanctions, including allowing US oil company Chevron Corp. to increase production in the country. 

Representatives from both sides had been meeting privately to discuss further relief in exchange for concrete steps by Maduro to hold open presidential elections, which are scheduled for 2024. This week, the government and opposition signed an agreement on electoral conditions that met US standards, although further negotiations on its implementation are expected to continue.

Despite the US measures, there are few signs a debt restructuring is near. The first default is nearing its sixth anniversary, meaning a statute of limitations for the bonds is about to expire and bondholders are at risk of losing their right to demand for payment in court unless they sue the country in the coming months. 

The Maduro government offered bondholders a suspension on the statute of limitations — known as tolling the bonds — for five years. However, this offer has no legitimacy in the US as Maduro is not recognized by US courts. 

Venezuela’s opposition lawmakers, which are authorized by the US to act as representative for the country, made a similar offer in August.

(Updates bond moves in the second paragraph, adds context and analysts starting in third)

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