Puerto Rico junk bonds dominate US municipal trades

WASHINGTON Wed May 14, 2014 11:25am EDT

WASHINGTON May 14 (Reuters) - Trading of the $3.5 billion bonds Puerto Rico issued in the middle of March, the largest U.S. municipal junk bond sale in history, has been fast and furious.

The bonds were the most actively traded securities of the first quarter of 2014, according to Municipal Securities Rulemaking Board data released on Wednesday, even though they only came to market in the final weeks of the quarter.

The bonds, which come with rich 8 percent coupons, traded 2,363 times, with a total par amount of $7.65 billion changing hands.

When measured by the number of trades, Port Authority of New York and New Jersey bonds maturing in 2037 came in second at 2,058, but that resulted in a total par amount of only $131 million in the first quarter.

By par amount, Virginia tobacco bonds maturing in 2047 were the second most traded during the quarter at $5.82 billion in only 14 trades.

Altogether, there were 2.39 million municipal bond trades in the secondary market, totaling $640.1 billion, in the first quarter, according to the MSRB, which collects and posts trading information on its Electronic Municipal Market Access system. Both par amount and number of trades were slightly lower than the first quarter of 2013.

Puerto Rico's bonds, part of an attempt to salvage the territory's finances and budget, were structured to attract hedge funds and other buyers who usually stay away from the $3.7 trillion municipal bond market.

Yields on the bonds bounced up and down in March, soaring to 8.838 percent on March 21 and then dropping to 8.471 percent by the end of the month, according to Thomson Reuters data.

They spiked at 9.425 percent on April 14 and have recently begun climbing again, hitting 9.128 percent on Tuesday.

Ultimately, the debt went beyond dominating the first quarter of 2014, and overtook other quarters of the past year.

In the first quarter of 2013, for example, the most actively traded security by par amount was a Gulf Coast revenue bond maturing in 2041 that only totaled $3.8 billion. A University of Wisconsin bond maturing in 2043 changed hands the most that quarter, with 2,122 trades that only totaled $331 million.

(Reporting By Lisa Lambert; editing by Andrew Hay)

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