Puerto Rico's new bonds sink to record closing low

April 14 Mon Apr 14, 2014 4:56pm EDT

April 14 (Reuters) - The price of Puerto Rico's newest bonds fell again on Monday, underperforming the wider municipal bond market to notch their lowest session-ending price since their debut a month ago.

The bonds, maturing in July 2035 and sporting a coupon of 8 percent, last traded at 87.75 cents on the dollar, pushing the yield up to 9.33 percent. Bond prices and yields move in opposite directions.

Puerto Rico, mired in a lengthy recession and carrying a debt load in excess of $70 billion, sold $3.5 billion of bonds in March, raising much-needed cash to thwart a looming cash crunch.

The bonds, which are rated as junk debt by the three major credit ratings agencies, enjoyed huge demand at the March 11 auction as hedge funds and other investors with strong appetites for risk flocked to their relatively high, tax-free yields. The commonwealth's bonds are triple tax-free - exempt from federal, state and local income taxes - meaning their coupon interest rate of 8 percent is the equivalent of 13.25 percent on a comparable fully taxable bond.

In the past two weeks, however, they have weakened substantially.

On Friday, they traded as low as 86 cents on an intraday basis following news that Puerto Rico had hired additional teams of restructuring experts.

Since their debut at 93 cents on the dollar, the bonds' price has now fallen 5.25 cents, or 5.6 percent. Their yield has climbed 98 basis points from a Day 1 close of 8.35 percent.

The bonds underperformed a wider U.S. municipal bond market that was little changed on the day. (Reporting by Hilary Russ; Editing by Dan Burns and Jonathan Oatis)

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