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Puerto Rico Is Not Greece, But Their Bonds Are Yielding Almost The Same
While PRexit is yet to hit the headlines, Puerto Rico bonds joined an illustrious club of ne'er-do-wells today with its 10Y yield spiking above 10%...
The surge comes after a judge threw out a debt-restructuring law that lawmakers passed last year. As Bloomberg reports,
The steepening borrowing costs come at a crucial time for the U.S. territory: Officials want to sell $2 billion of petroleum tax-backed debt to pump cash into the Government Development Bank, which lends to the island and its localities.
Puerto Rico and its agencies have $73 billion of debt, more than all U.S. states but California and New York. Most of the securities are tax-free nationwide and held by investors around the country. General obligations maturing in 2035 traded with average yields above 10 percent, the highest since they were issued in March 2014. The securities changed hands for as low as 81 cents on the dollar.
The selloff is "putting pressure on liquidity for the commonwealth, which has implications for just about everything they do,'' said Bill Black, who helps manage Invesco Ltd.'s $7.5 billion High Yield Municipal Fund.
U.S. District Judge Francisco A. Besosa ruled Feb. 6 that the restructuring law that Governor Alejandro Garcia Padilla signed in June would take away protections provided under federal bankruptcy code, presenting an "irreconcilable conflict."
Puerto Rico plans to appeal the ruling, Secretary of Justice Cesar Miranda said in a statement Monday. The law would have allowed certain Puerto Rico agencies, such as its power utility, to negotiate with bondholders to reduce their debt. By strengthening the hand of those investors, the decision may leave less cash available for Puerto Rico general obligations, said Black at Invesco, which owns some of the utility debt.
"It is important that the commonwealth's creditors, other constituents of political entities and the public interest that these entities serve, benefit from mechanisms necessary to adjust their debts in an orderly manner at an economic cost that is prudent and in the best interests of the commonwealth,'' Melba Acosta, president of the GDB, said in a statement.
Throwing out the restructuring law restores bondholders' ability to force Puerto Rico and its agencies to raise taxes or electricity rates, cut staff and negotiate fuel contracts, said Daniel Hanson, an analyst at Height Securities LLC, a Washington-based broker-dealer.
"Puerto Rico is now in a meaningful position of weakness with respect to its bondholders,'' Hanson said. "It forces the government's hand in public-policy questions. They either make decisions that are bond-friendly or they're forced to make decisions later on by courts."
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Chart: Bloomberg
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That would be hilarious if puerto rico was the first domino.
BLACK SWAN! lol
Anyone ever been to PR? Lovely lovely place. A shame about their debt troubles, but hey, there's always 'manana' - according to their lingo - for debt, and for pretty much every single other thing you try and get done in that state.
Still, lovely people. Does that count for something?
If it gets to bad in Puerto Rico....they could aways just sneak across the Mexican border.
Declare refugee status and snitch on a border cop......be in Chicago by nightfall.
Puerto Ricans are US citzens you dumb fuck.
Heh heh......that's one.
PR has so many bananas...
Will it become the republic of bananas?
#IslaEstrellá
So are most Mexicans it seems...
Meh the OP gave the impression they didn't understand Puerto Rico was a US possession and its inhabitants were US citizens ("sneak"), or that its an island closer to Florida than Mexico.
Most "Puerto Ricans" are in either Central Florida or NYC. They have mucho mucho pride for their native island, but for some reason they would rather live in whitey's cities.
Unfortunate but true. That's only thanks to Teddy the asshole Roosevelt. You win a war and the prize is Puerto Rico. No thanks, I'd rather lose!
"Puerto Ricans are US citzens you dumb fuck." - Yes a disadvantage to getting free goodies. Better to say you are from Guatamala and do the no Ingles - no Ingles thing.
Its seems that the more lovely we are the higher yield.
Zeropower,
Is it one of the 57 states?
"They either make decisions that are bond-friendly or they're forced to make decisions later on by courts."
fuck the people pay us our money..paper fiat debt is better then a loan sharks game..the bond criminals got the judge paid off.
All this exit talk must be bullish for all I see is green shoots!
The system will never fail.....Everyone has agreed bailouts for all and printing money is acceptable.
Doesn't matter who, but, someone must print this shit away. Paper backing paper backed by fascism, thta's the NWO.
http://europoly.tagesspiegel.de/english/
When Puerto Rico joins the EU, then, stop by. We'll talk.
They are part of the US. Actually the Democrats would like them to be our 51st state. That would guarantee Democrats in the White House for decades.
PR has been on the radar for a year now. My radar anyway (as I posted about on ZH). Which means probably 2 years or more for people who actually know tax-exempt bonds well. Any funds left holding these things by now should have their heads examined. Debt the size of California, no GDP or tax base to speak of. Your typical basket case.
PRexit...sounds like a new pharmaceutical.
I wonder what Doug Casey has to say about this. His blog the International Man raves about the corporate tax down there, I think 3 or 4%...
Who in their right mind would buy either PR or Greece's debt? Oh, I get it, you have to be down with OPM!
If only neck tatoos and spinning rims were currency...
Except for the cockroaches
PR is the original welfare state. Someone in the media should shove it up Obama's nose at the next presser.
THe Puerto Rican economy is even less vibrant and functional than that of Greece.
In many ways P.R. is what Europe fears Greece will become: a perpetual deficit economy requiring perpetual transfer payments to stave off poverty.
Puerto Rico has a deeply corrupt and deeply entrenched political and business class that control both the local mainland propped shell economy and overtly influence the dispensation of the transfer payments that keep the wheels from coming off.
Without the myriad direct and indirect tax subsidies businesses would never locate or stay there.
Without sustained US federal welfare transfer payments and benefits it would look little different from the Dominican Republic, Cuba, or Haiti.
Sorry, I just feel like singing, I want to leev een Ahmereeka, everything free in Amerreeka!
On edit; https://www.youtube.com/watch?v=Qy6wo2wpT2k
I was watching some documentary... PR has the highest proportion of homicides by firearm in the world.
Puerto Rico has the highest proportion of homicides by firearm in the world and with D.C. has among the strongest gun control laws in all of the United States.......
Have the 'Ricans entertain a Russian trade delegation.
Have liquidity problems? Talk to Vlad.