What's the Appeal of Puerto Rico Debt?

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Nov. 13 (Bloomberg) –- In today's "Global Outlook," Bloomberg's Mary Childs takes a look at the appeal of Puerto Rico debt on Bloomberg Television's "Street Smart." (Source: Bloomberg)

If you are in the business of dealing with a distressed debt, puerto rico has probably been on your radar with a $70 billion in debt or 85% of the u.s. territories gdp and it is crediting just above junk.

You know bonds have nearly doubled this year.

What retail investors may not realize is they are also -- via mutual funds with a triple hat exempt status.

The bonds have been an attractive place to park money for years.

Or than 75% of mutual funds hold puerto rico and debt.

We have been following this story.

Many wall street banks have been busy pitching this debt.

We all know what that means for them but what are the implications for the mom and pop investors?

As these wall street firms are encouraging this, it means a loss of things for the mom and pops of the world.

You have the hedge funds coming in.

It looks very attractive to them which is great.

It's a kind of stabilizes things . you have these new people coming but what kind of money is this?

It's a new demographic of people investing.

It might be hotter money than people are used to, especially in this state.

Why do all of these distressed debt investors need to deduct sales forces at the banks to be walking them through this process?

Rocks you have had meetings at stem the group, morgan stanley.

It really is a different space.

You have these guys who are used to distressed or per and those have roles and you know are you are.

Unions are different.

It is a totally different structure.

Each not know what you are getting into.

How about a political risk?

It is probably hard for a wall street investor to get their head around.

Look at argentina and what they did with their debt.

They basically told them to go home.


That is a real risk.

If you are not used to doing with that incorporate, you are not used to pricing it in.

You have examples like cyprus where you may have that political element come in.

It seems like such a niche bond.

Yet it is in so many different portfolios, some of which are not even bond portfolios.

How did that happen?

It looks really attractive.

When you see a yield above 5%, 8%, you think i'm a can i get into that?

There are a lot of reasons it looks attractive it is been on the slide, but you cannot argue with those yields in some cases.

One last thing.

What is the likelihood of a default in puerto rico?

There is no provision in the constitution for a default in puerto rico so it is technically not possible.

That does not mean you cannot have a restructuring or a missed payment.

That has been one of the lessons in the last couple years.

Thank you as always for joining us.

When we come back, we will be

This text has been automatically generated. It may not be 100% accurate.


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