- Commonwealth debt index increases for eight straight days
- GOs maturing in 2037 at highest average price since January
Puerto Rico bonds are staging the longest rally in six months with the U.S. House of Representatives poised to vote on legislation to help resolve the island’s $70 billion debt crisis.
The prices of some securities rose Thursday amid speculation that the House will approve a bill, known as Promesa, that empowers a federal control board to monitor the U.S. territory’s budgets and oversee any debt restructurings. The gains came after an index of Puerto Rico debt climbed for eight straight days through Wednesday, the longest winning streak since November, S&P Dow Jones indices show.
“It might not be the best possible bill ever, but at least there’s going to be some structure in place to start the process,” said Daniel Solender, who oversees $19 billion as head of municipals at Lord Abbett & Co. in Jersey City, New Jersey, including commonwealth debt.
Puerto Rico and its agencies owe $70 billion after borrowing for years to cover operating expenses as the island’s economy shrank. The House legislation has the backing of Republican leaders and the White House. Senate Majority Whip John Cornyn told reporters on Tuesday the best course would be to take up the House bill and send it to President Barack Obama for his signature.
The momentum is helping lift prices on some commonwealth debt, Solender said. Puerto Rico general obligations with a 5.25 percent coupon and maturing in 2037 traded Thursday at an average of 62.1 cents on the dollar, the highest since Jan. 29, to yield 9.4 percent, data compiled by Bloomberg show.
Commonwealth general obligations with an 8 percent coupon and maturing in 2035, the most-actively traded Puerto Rico debt in the past three months, changed hands at an average of 65.8 cents on the dollar, up from 65.7 cents Wednesday, Bloomberg data show. The yield was 12.8 percent.
The potential federal intervention is emerging just weeks before Puerto Rico and its agencies must pay $2 billion of principal and interest, including $805 million for general obligations, which Governor Alejandro Garcia Padilla has said the island cannot pay. The July 1 payment may be Puerto Rico’s first-ever default on general obligations, which the island’s constitution says must be repaid before other bills.
While Puerto Rico securities gained 2.7 percent this year through Wednesday, that trailed the 3.1 percent advance for the broader market and the 4.9 percent boost for high-yield municipal debt, according to S&P Dow Jones Indices.