NEW YORK Jan 31 Puerto Rico bonds facing
possible junk ratings are no longer part of the S&P National
AMT-Free Municipal Bond Index because of the debt's outsized
yields and spotty liquidity, S&P Dow Jones Indices said on
The policy shift, announced Jan. 8 and effective on Friday,
raises worries that demand for Puerto Rico debt from investors
tracking the index will soften when the Caribbean island is
readying a bond sale or other possible financing.
Meant to track general obligation and other
investment-grade, tax-exempt U.S. municipal bonds, the S&P index
excludes healthcare, multifamily housing and other generally
"Puerto Rico municipal bonds are now trading at levels more
appropriate for high yield taxable corporate bonds," S&P Dow
Jones said. "Puerto Rico municipal bonds also are experiencing
varying degrees of liquidity ... (and) no longer meet the
objective established by this investable investment grade
With a shrinking economy, Puerto Rico has outstanding bond
debt of about $70 billion with tax-free yields sometimes over 10
percent. All three U.S. credit-rating agencies rate it as barely
investment grade and are considering rating downgrades to junk.
A downgrade could spur selling of Puerto Rico bonds by
investors limited to investment-grade securities and raise the
island's borrowing costs.
S&P Dow Jones said Puerto Rico bonds would stay in other
indices such as the S&P Municipal Bond Index and the S&P Taxable
Municipal Bond Index.
Puerto Rico debt has rallied some in recent weeks after a
steep selloff that began in September, with the S&P Municipal
Bond Puerto Rico Index so far this year posting returns of 2.3
percent. For all of 2013, negative returns were 20.46 percent.