Puerto Rico’s 2014 GO bond has rallied

Bonds

The secondary market price of Puerto Rico’s 2014 general obligation bond increased 40% since June 11.

On that date IHS Markit had an imputed market price of 47 cents on the dollar. The price as of Thursday was 66.75 cents on the dollar.

One analyst said, “Much of the recent economic news for PR has been positive, liquidity balances are good and the rhetoric about declaring that issue unconstitutional has been dialed down a bit. At least until the recent earthquakes, that is.”

Municipal Market Analytics Partner Matt Fabian said, “This is more a function of overall spread tightening and investor risk taking in fixed income generally than the fundamentals of Puerto Rico GO recoveries. This is not only with respect to buying and trading the current instruments, but also in expectation of a stronger liquidation/trading value for whatever GO bondholders end up getting in exchange for their current certificates.”

He continued, “Looking only at Puerto Rico’s situation, you could theorize that the board is now under more pressure to complete a restructuring before year end and so could be compelled to offer better recoveries to GO holders. Or that the large commonwealth cash position suggests a better payout to GO holders, things getting still better as more disaster aid is authorized for disbursement.

“But there are also lots of Puerto Rico-specific reasons why recoveries might wind up still lower, like the commonwealth maybe losing its corporate tax preference, or there being potential changes to [the Puerto Rico Oversight Management and Economic Stability Act] should Republicans lose the U.S. Senate, etc. All in, these probably aren’t enough to drive the kind of tightening you are showing.”

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