Puerto Rico Bond Yields Enter 2014 at All-Time Highs


Wishful thinking? Michael Aneiro (Barron’s) reports good news on Puerto Rico’s financial front, indicating that the island may be able “to dodge a downgrade to junk status” and might even sell new bonds. Many in Puerto Rico are keeping their fingers crossed; according to Reuters, with some $70 billion of municipal bonds outstanding, the economically beleaguered island has raised taxes, taken on pension reform, and cut staff to address chronic budget deficits. Aneiro writes:

After its financial troubles grew into a full-blown crisis last year, Puerto Rico is probably happy to to put 2013 behind it, but the commonwealth now finds itself entering 2014 with its borrowing costs at all-time highs. Al Yoon and Mike Cherney report in today’s Wall Street Journal that the average yield on Puerto Rico’s 10-year bonds closed the year at 9.87%, while the S&P Municipal Bond Puerto Rico Index fell 20.47% in 2013, the worst performance since its launch in 2000.

In 2014 the island will try to dodge a downgrade to junk status by Moody’s or Fitch, and it might try to sell new bonds too. From the Journal:

A successful public bond sale would give Puerto Rico more time to get its finances in order and reassure investors. Plans to issue bonds by the end of 2013 were delayed to avoid paying high interest rates, according to a person familiar with the matter. Puerto Rico officials declined to comment for this article but local media reports have quoted officials as saying that the commonwealth plans to return to the bond market in early 2014. Lately, the island has turned to short-term bank loans for funding, balking at the high yields demanded by bond investors, said people familiar with the thinking of Puerto Rico’s finance officials.

Puerto Rico’s problems were first put under the spotlight by my colleague Andrew Bary’s cover story (“Troubling Winds”, Aug. 26.) in Barron’s.

For original article, see http://blogs.barrons.com/incomeinvesting/2014/01/02/puerto-rico-bond-yields-enter-2014-at-all-time-highs/

Also see http://www.reuters.com/article/2014/01/02/idUSL2N0KC1BF20140102?feedType=RSS in English and the not-so-good-but-realistic news http://www.metro.pr/locales/senador-ppd-asegura-que-la-degradacion-del-credito-es-inminente/pGXnab!Z8wLB8f1yRLh2/ in Spanish.

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