Puerto Rico general obligations are trading at the lowest yields in two weeks after commonwealth officials yesterday said they may avoid selling debt through June 30.
Securities maturing in July 2041 and rated one step above junk traded today with an average yield of 8.7 percent, the lowest since Oct. 2, data compiled by Bloomberg show. The yield spread over benchmark municipal bonds also shrank to a two-week low, after setting a record high last week.
While Puerto Rico still plans to sell as much as $1.2 billion of sales-tax bonds by Dec. 31 to balance budgets, it has enough funds to hold off on issuance if borrowing costs are too high, David Chafey, chairman of the Government Development Bank, said in a webcast briefing for investors yesterday.
A potential suspension of debt sales has prompted investors to buy, said Gary Pollack, who oversees $6 billion of munis as managing director in Deutsche Bank AG’s private-wealth unit in New York.
“If you sold bonds in anticipation that you’re going to have more supply down the road, you may not get that supply,” Pollack said. “So you might go back in and buy bonds now.”
The webcast, which lasted more than two hours, outlined the island’s economic goals and “made investors feel a bit more comfortable that the commonwealth is moving along a better path,” Pollack said.
Its bonds are rebounding after yields soared to record highs on investor concern that Puerto Rico’s contracting economy would make it harder to repay its debt. More than three-quarters of U.S. municipal-bond mutual funds hold the securities, which are tax-exempt in all states, according to Morningstar Inc.
The general obligations maturing in July 2041 traded with an average yield of 8.98 percent Oct. 7, the highest since the debt was first sold March 2012. Yields move inversely to prices.
Puerto Rico debt has lost 21.6 percent this year through Oct. 15, the worst performance since at least 1999 and more than six times the losses in the $3.7 trillion municipal-bond market, according to Standard & Poor’s data.