The story plot thickens for Puerto Rico bonds as Moody’s placed bonds issued from Puerto Rico under review for a possible downgrade to below investment grade.  Selling pressure continues to mount impacting the market.  The S&P Municipal Bond Puerto Rico Index has seen a negative total return of 19.45% year to date and the weighted average price of bonds in the index has fallen by over 24% this year.   The weighted average yield (YTW) of bonds in the index ended at 7.26% or  419bps higher than investment grade bonds.

Investment grade municipal bonds tracked in the S&P National AMT-Free Municipal Bond Index have seen a negative 3.21% return year to date. Secondary trading in the muni market tends to get lighter before and after the holidays and it is still wrestling with a  heavy new issue calendar.

Tobacco settlement municipal bonds also have been weaker.  The S&P Municipal Bond Tobacco Index has declined by 8.96% year to date.  The index tracks over $82billion in par value of tobacco settlement bonds.  Yields on these bonds have risen 267bps over the course the year to end at 6.89%. These high yield, long duration bonds are impacted by both credit risk driven by declining tobacco use and the possibility of rising rates.

Investment grade municipal bond yields vs Puerto Rico municipal bond yields