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Summers Sees Low Market Confidence in Puerto Rico Bonds

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Nov. 7 (Bloomberg) -- Former U.S. Treasury Secretary Lawrence Summers said financial markets show a lack of confidence in Puerto Rico’s economy, with its bonds trading as the “junkiest of the junk.”

“There are profoundly serious financial issues facing Puerto Rico right now,” Summers said today at the Continuity Forum in Miami Beach, Florida. “How that’s resolved is a very important question for North America and for the Puerto Rican community.”

Yields on Puerto Rican bonds maturing in 2041 climbed to as much as 10.2 percent in September before falling to about 7.7 percent this week. The commonwealth’s bonds are widely held in the $3.7 trillion municipal bond market because of their exemption from local, state and U.S. federal taxes.

The commonwealth took in $865 million in revenue in October, about 15 percent more than forecast, on higher corporate-tax receipts, Treasury Secretary Melba Acosta said in a Nov. 4 statement.

A default by Puerto Rico, which is rated one level above junk status, is unlikely since its constitution gives priority to general obligation bond payments over government spending, Acosta said yesterday at the Bloomberg Link State & Municipal Finance Conference in New York.

To contact the reporter on this story: Bill Faries in Miami at wfaries@bloomberg.net

To contact the editor responsible for this story: James L Tyson at jtyson@bloomberg.net

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