TO MOST investors, Venezuela looks less like a market than a mess. The IMF expects output to shrink by 10% this year and inflation to exceed 700%. As the bolívar’s value has plunged, multinational firms have announced billions of dollars of write-downs. For much of this year, however, some strong-stomached investors have scented an opportunity. They rushed to buy bonds issued by the government and by the state-owned oil company, PDVSA. They have been rewarded handsomely. Venezuelan government bonds have outperformed other emerging-market sovereign bonds tracked by JPMorgan (see chart). The government, led by Nicolás Maduro, boasts it has never missed a debt payment. Indeed he has given priority to debt service over other urgent needs, such as importing food. Mr Maduro is keen not to scare off the foreign creditors sorely needed by PDVSA.

However, Venezuela looks increasingly stretched. Two big PDVSA payments, of $1 billion and $2 billion, are due on October 28th and November 2nd. Last month the company proposed a bond swap to ease a looming payments crunch: investors holding PDVSA bonds maturing in 2017 (which are not backed by a full sovereign guarantee), would exchange them for bonds maturing in 2020. This would buy Venezuela time, perhaps in the hope that oil prices rise.

Not so fast. Even sweetened terms for the swap have failed to lure investors. PDVSA has four times delayed the deadline for the exchange, most recently to October 21st. PDVSA warned in a press release on October 17th that if its offer is not accepted, “it could be difficult” to make its scheduled payments.

Francisco Velasco of Exotix, a brokerage specialising in frontier markets, says investors face a prisoner’s dilemma. They could agree to a swap, with terms that are less than ideal, in the hope that others investors will do the same. Or they could decline PDVSA’s offer. But that would make default ever more likely.