Two stories from Bloomberg News paint an ugly picture of Puerto Rico’s economy. First, investors are starting to think Puerto Rico’s credit has been overvalued and have started to price it like distressed debt:
Yields on some general obligations set record highs last month. Investors demand about 5.2 percentage points of extra yield, or 520 basis points, to own 10-year Puerto Rico debt instead of top-rated securities, up from about 3 percentage points in mid-August, data compiled by Bloomberg show.
Recent yields on Puerto Rico bonds have “gone up about two to 300 basis points, depending on the credit, and it may have another 150 to 200 basis points to go once they really get through this,” [Peter Hayes, head of municipal debt at BlackRock Inc.] said.
Then, Moody’s reacted accordingly:
The credit rating on Puerto Rico’s sales-tax revenue bonds was lowered two levels by Moody’s Investors Service as the commonwealth tackles recurring budget deficits and a struggling economy.
Continue reading →