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Puerto Rico Bond Yields Hit Record Highs: Jack Lew Was Wrong Again

Tyler Durden's picture




 

10-year Puerto Rico general obligation bond yields spiked to 12.3% - the highest on record - as the island’s Government Development Bank's $354 million of principal and interest due on December 1st looms. Puerto Rico is now 450bps 'riskier' than Greece, which means Treasury Secretary Jack Lew was wrong again in not taking the German FinMin's offer in July to swap Puerto Rico for Greece...

It appears Schauble's July trade would have been a loser...

  • SCHAEUBLE: OFFERED LEW TO TAKE PUERTO RICO IF US TAKES GREECE

As we joked at the time...

And now PR is 450bps wider than Greece..

For context, PR's 12.3% yield is ~10.3 percentage points more than benchmark municipal bonds with the same maturity and equivalent to a 21.8% taxable interest rate for the highest earners.

 

Puerto Rico’s bondholders face mounting risks as the commonwealth veers toward default. As Bloomberg notes, a spokesman for Governor Alejandro Garcia Padilla said Thursday that while the commonwealth intends to meet its obligations, the government could run out of cash and will pay for essential services over creditors. That announcement came a week after the Obama administration proposed giving the commonwealth unprecedented authority to restructure its entire debt burden through bankruptcy protection, a proposal the governor endorses.

 

Charts: Bloomberg

 

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Fri, 10/30/2015 - 12:14 | 6731214 Lady Jessica
Lady Jessica's picture

Now let's watch them try to ringfence this disaster [Sadly they'll probably succeed].

Fri, 10/30/2015 - 12:50 | 6731398 Bangin7GramRocks
Bangin7GramRocks's picture

Insiders will get a wink and a nod that PR will be saved and these amazingly brilliant investors will make ass loads of money once again. Then they can go on CNBC and be called "legendary".

Fri, 10/30/2015 - 12:14 | 6731219 Bill of Rights
Bill of Rights's picture
Sen. Bill Stanley reports threat by gun-control advocate Andy Parker

http://www.roanoke.com/news/crime/sen-bill-stanley-reports-threat-by-gun...

 

More proof who the real " Mental illness " nuts are folks.... The Left are violent individuals ...

 

Fri, 10/30/2015 - 12:23 | 6731257 samjam7
samjam7's picture

It's not as if Greece was saved now and their yields told the investor anything about its underlying risk, so why pretend Tyler?

Both are broke now, it's just a question of who is better in covering it up and make society pay for it. So far the EU has put more money in their hands to shore up Greece.

Fri, 10/30/2015 - 12:24 | 6731264 chrsn
chrsn's picture

Oh my God!  We need a bankrupt nation to bail them out with monopoly money--stat!

Fri, 10/30/2015 - 12:28 | 6731286 Bill of Rights
Bill of Rights's picture

Off shore inflation, nice scam huh? bankrupt a nation and send over pallets full of cash, and call it money...

Fri, 10/30/2015 - 12:35 | 6731323 FreeShitter
FreeShitter's picture

When has Jack lew and the Tribe ever been right? Kaiser says it best.

Fri, 10/30/2015 - 12:36 | 6731324 blux
blux's picture

USA Central Bank runs a ponzy scheme. Sure they can teach any country how to cheat. Unfortunately if you are on the other side of the deal, you loose.

USA is the only country that can pretend it can pay its massive debt...for now at least.

Fri, 10/30/2015 - 12:38 | 6731343 Osmium
Osmium's picture

If anyone were to question the USA ability to repay the dept, we roll out the trillion dollar coin idea again.

Fri, 10/30/2015 - 12:39 | 6731346 American Sucker
American Sucker's picture

Like Greece, Puerto Rico needs to declare independence, default, and issue a new currency.  Like the Greeks, Puerto Ricans feel pride in being connected to a wealthy and powerful nation that does not have their interests at heart.  (Independence polls about 5%.)  I understand their reluctance to leave the US, considering how many of them serve in the Armed Forces, how many Puerto Ricans live on the mainland, and the creeping anglicization of the island.  In their place, I'd be torn, too.  But other than independence and default, I don't see how they get out of this.

Fri, 10/30/2015 - 12:42 | 6731361 blux
blux's picture

couldnt agree more. 

Fri, 10/30/2015 - 12:50 | 6731397 blux
blux's picture

Wanted to clarify...Greece is legally a sovereing nation, which is part of the EU economic zone. 

However, Puerto Rico IS NOT a country, and NOT a sovereing nation. Significant difference. It is technically a POSESSION, BUT NOT PART of the USA.

In that sense Puerto Ricos debt issue is a USA issue. But if USA is broke, what should anyone else expect? Texas, where they have crude oil?

Fri, 10/30/2015 - 13:18 | 6731502 American Sucker
American Sucker's picture

Puerto Rico's legal status is a little weird.  The federal government considers it an Incorporated Territory.  Puerto Rico considers itself a Free State "associated" with the United States, whatever that means.  In practice, the EU and US have enormous power (de jure and de facto, both) over Greece and Puerto Rico respectively.  My gut feeling is that if Greece and Puerto Rico both voted for independence, the US would be less reluctant to let Puerto Rico go than the EU would be to let Greece go, despite Puerto Rico's weaker formal sovereignty.

Fri, 10/30/2015 - 13:48 | 6731623 Puerto Rico is ...
Puerto Rico is worst than Greece's picture

Puerto Rico is not a incorporated territory, it is an unincorporated territory. The difference is that Incorporated are terrtories en route to statehood, think of Alaska in the fifties or Oklahoma in the 1900's. Unicorporated are not en route to statehood, and it could go either way. The Phillipines were an unincorporated territory, and then were granted independence.

As a Puerto Rican, I say fuck statehood because as a colony we (indirectly) know how life will be as a state, even though that is not clear to the rest of the Puerto Rican population.

Fri, 10/30/2015 - 13:57 | 6731668 American Sucker
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My bad, thanks for the correction.  Upvote for ya.

Fri, 10/30/2015 - 13:07 | 6731465 goldsaver
goldsaver's picture

You Sir, are correct! There are several reasons why independence pols so poorly in the island. First, there is this innate fear that independence would mean revolution and going the way of Cuba. The Cuban expat lobby in PR is POWERFUL. They encompass some of the most powerful families in the island (Bacardi anyone?). Second, it is true that there is a sense of kinship with the US, but it's more out of habit than pride. About half of all who identify as Puerto Ricans (even if they were not born in the island) live in the US mainland. Third is a matter of economics. About half of the island workers are government workers or indirectly work for the government. About half of the TOTAL population is on Federal benefits (welfare, social security, medicare/medicaid). No other way to make it really. The economy has been shaped, for the last 30 years or so, to be a total shithole economy.

One of my daughters in law just moved to NC from the island. She has a MS is neuroscience and and MA in child development and learning. She was making 8.25 an hour working in a clothing store and was offered 35 an hour starting salary in NC. If a double master's degree can not get you more than 8.25 an hour, how do you think the ones without college degrees can make it? Of course they go on welfare and then stay on welfare because there is nothing else to go to. The island currently charges income tax, 12% sales tax, property taxes, business taxes, rental property taxes, etc, etc, etc. Those who work, end up having most of their salary taken by the state.

The culture has devolved into a vulture culture. Every business tries to screw their customers one way or another in order to squeeze an extra penny. You can not rent your property, the tenants will not pay and the laws give them, after two court visits, a year of living for free in your property before you can evict them. Labor unions are VERY strong in the island. Hire someone full time and you are stuck with them no matter what.

The only solution, would be independence and starting over. Not going to happen without a cultural change.

 

 

Until they become conscious they will never rebel,
and until after they have rebelled they cannot become conscious.

Fri, 10/30/2015 - 12:41 | 6731353 scraping_by
scraping_by's picture

"the government... will pay for essential services over creditors."

Obviously didn't get the NWO memo.

While a possible Obama Headfake, that's bold talk from a colony. And, unlike Greece (Portugal, Italy, Spain, etc.) the servile relationship is explicit instead of understood. Odd thing to say.

 

Fri, 10/30/2015 - 12:42 | 6731366 Ghostdog
Ghostdog's picture

Jack Lew wrong? It must be Sunday... or Monday or Tuesday or Wednesday or Thursday or Friday or Saturday....

Fri, 10/30/2015 - 12:47 | 6731383 buzzsaw99
buzzsaw99's picture

the only difference is that a lot of banks are holding greek debt so they get a crony bailout. puerto rico would get bailed out too if that debt was held by cronies but most of it isn't.

Fri, 10/30/2015 - 12:48 | 6731387 goldsaver
goldsaver's picture

Here is a question for those of you still in the casino. What are the institutional buyers who bought this new debt thinking?

Clearly there are only two possible outcomes, either Puerto Rico defaults, which the governor has already alerted them he would do or congress will allow them to restructure under bankruptcy, essentially the same thing.

Are they hoping to be made whole by the Fed?

Fri, 10/30/2015 - 16:04 | 6732210 Lucky Leprachaun
Lucky Leprachaun's picture

Definitely the latter.  And they'll be right.  Again.

Fri, 10/30/2015 - 12:55 | 6731418 hungrydweller
hungrydweller's picture

Don't buy in yet.  Wait for the real crisis to hit and and PR bonds are near bankruptcy.  Then buy in and expect a US bailout and drive to add PR as the 51st state so we can add millions of freeshit voters.

Fri, 10/30/2015 - 12:57 | 6731432 hungrydweller
hungrydweller's picture

Or at least a few congresscritter lamebrains to actually count for something.

Fri, 10/30/2015 - 13:21 | 6731514 azusgm
azusgm's picture

Swap it to the Chinese in exchange for our debt. Could be suicidal and a missles of October scenario, but we have to remember the regime in power in the USA. Mentally ill leaders engage in pathological acts.

Fri, 10/30/2015 - 14:36 | 6731870 silverer
silverer's picture

12.3%.  That looks great.  But what's the real return?  (After the default haircut?)

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