Ripples From Puerto Rico’s Debt Crisis Reach the Mainland
A lawsuit to invalidate $14 billion of Illinois bonds draws inspiration from the island’s restructuring.
Illinois definitely has problems, but are they bad enough to wipe out a large chunk of bondholders?
Photographer: Saul Loeb/AFP/Getty Images
Joe Mysak, Bloomberg News’s foremost expert on the $3.8 trillion municipal-bond market, has a saying about Puerto Rico: It was technically “in” the market for state and local government debt, but not “of” it. That is to say, for a number of reasons, it has always been considered an outlier.
Indeed, munis are off to a blistering pace in 2019, with mutual and exchange-traded funds focused on the debt on track to pull in a record amount of cash this year. Investors are buying even though a closely watched gauge of relative value would suggest the bonds are a screaming sell. Never mind that at the start of the year, a federal oversight board argued that more than $6 billion of Puerto Rico’s general-obligation bonds should be declared null and void because issuing them in the first place breached the island’s constitutional debt limit. It’s just an outlier, after all.