Yields on some general obligations set record highs last month. Investors demand about 5.2 percentage points of extra yield, or 520 basis points, to own 10-year Puerto Rico debt instead of top-rated securities, up from about 3 percentage points in mid-August, data compiled by Bloomberg show.Recent yields on Puerto Rico bonds have “gone up about two to 300 basis points, depending on the credit, and it may have another 150 to 200 basis points to go once they really get through this,” [Peter Hayes, head of municipal debt at BlackRock Inc.] said.
Then, Moody’s reacted accordingly:
The credit rating on Puerto Rico’s sales-tax revenue bonds was lowered two levels by Moody’s Investors Service as the commonwealth tackles recurring budget deficits and a struggling economy.Moody’s said today it cut the rating to A2 from Aa3 on $6.8 billion of senior sale-tax bonds, saying Puerto Rico’s weak economy has significantly limited growth in sales-tax revenue. The New York-based company affirmed its A3 grade on $9.2 billion of other bonds issued by the Puerto Rico Sales Tax Financing Corp., known as Cofina.
Puerto Rico is in big trouble. We don’t see any indication that it’s collecting the necessary revenue or making the necessary cuts to stop the bleeding in its budget deficit, pension liabilities, or other debts. It looks like the government may have to cut more services and sell off more roads and airports.If Puerto Rico ever wanted to join the US as a state, problems like these certainly wouldn’t help its case.[Puerto Rico image courtesy of Shutterstock]