Puerto Rico debt prices mixed after junk-bond rating

NEW YORK Wed Feb 5, 2014 10:44am EST

NEW YORK Feb 5 (Reuters) - Puerto Rico bond prices were mixed on Wednesday, with some issues slumping and others perking up from lows touched after Standard & Poor's knocked the Caribbean island's overall credit rating into junk-bond territory.

A 2025 Puerto Rico public improvement bond with a 5.25 percent coupon traded in light volume on Wednesday between 63 and 64 cents on the dollar after selling a week earlier at 70.5 cents, according to Municipal Market Data. Its yield on Wednesday was just over 11 percent tax free.

The issue traded even lower on Tuesday at about 56 cents on the dollar after news of S&P's downgrade. Other Wall Street credit agencies are also considering cuts in ratings to non-investment grade for Puerto Rico, which carries $70 billion in debt and is battling population loss and chronic recession.

A 2041 public improvement issue with a 5 percent coupon traded on Wednesday at 65 cents on the dollar, up from a low on Tuesday of 62.5 cents. Its tax-free yield on Wednesday was 8.24 percent, or 443 basis points over a comparable Treasury and down from a 480 basis point spread on Tuesday.

"It appears that the market feels that the short-term risk ... is much greater than that for the commonwealth's long-term debt," MMD analyst Dan Berger said in a pre-market commentary.

Bonds issued by the island's Sales Tax Financing Corp, whose A-plus rating was left intact by S&P's analysts, were little changed in Wednesday's trading.

"Puerto Rico trading yields already reflect below investment grade ratings, so we do not expect precipitous price declines, although some value erosion is likely," Janney Capital analyst Alan Schankel said in a commentary.

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