By Edward Krudy
NEW YORK, March 12 Puerto Rico's newly issued
bonds rallied on Wednesday, a day after investors flocked to the
high returns offered by the cash-strapped U.S. territory's $3.5
billion debt sale.
Analysts said the debt, much of which was bought by more
risk-tolerant hedge funds, was drawing strong interest from
investors who missed out on Tuesday's heavily oversubscribed
sale, as well as buyers hoping to make a quick profit from the
There were also indications that despite the unusually large
denominations of $100,000 dollars, some of the trading was
meeting demand from retail investors.
Puerto Rico's newly issued general obligation debt traded
with an average yield of 8.35 percent, with over $557 million,
or more than 15 percent of the issue, changing hands in brisk
trade, according to data compiled by Municipal Market Data.
"The bonds have traded up in a very significant way over the
last 18 to 24 hours," said James Colby, chief municipal
strategist at Van Eck Global in New York. "It's been a while
since I've seen a market environment that supported such a
strong after market for trading."
Van Eck took part in Puerto's Rico debt sale for the firms
index tracking funds but was not involved in trading on
Wednesday, said Colby.
The strong appetite for Puerto Rico's sale, which was nearly
five times oversubscribed with $16 billion in offers, was seen
as a positive for the overall municipal bond market. Last year,
Detroit's bankruptcy filing and concerns Puerto Rico was locked
out of markets were among factors that weighed on investors.
Prices on longer-dated triple-A rated bonds jumped on
Wednesday. Thirty year bonds gained 6 basis points.
Tuesday's sale, considered crucial for financial reforms in
the U.S. territory, which has $70 billion of outstanding debt,
was priced in a single 2035 maturity with an 8 percent coupon
and an approximate yield of 8.727 percent.
Wednesday's trading was unusual in the muni market, where
only about 1 percent of outstanding bonds can trade in the
secondary market on any given day. It may reflect the greater
presence of the non-traditional investors who bought Puerto
The debt sale was one of the biggest and most anticipated in
years in the usually sleepy $3.7 trillion municipal bond market
that is predominantly held by mom and pop investors.
"Some of it is probably going to retail now where they are
buying it out of institutions," said Lyle Fitterer, a municipal
fund manager at Well Capital Management, pointing to some
smaller trades at higher prices on Wednesday.
Fitterer said he did not take part in Tuesday's sale and was
not active in the secondary market.
Many muni funds shied away from the deal after Puerto Rico's
debt was downgraded to junk status by the three major ratings
agencies earlier this year. Some investors have not ruled out
the possibility Puerto Rico might restructure its debt despite
the mammoth sale this week.