Secondary rallying on Puerto Rico's new term bonds slowed Thursday morning after initial buyers took immediate profits and exited their positions.
Yields on the 8% coupon bonds maturing in 2035 climbed 11 basis points by 10:30 a.m. in New York as trading activity on the bonds remained high, with the new GOs the most actively traded CUSIP in the secondary market.
The softening Thursday follows a rally that pushed the yield down as much as 45 basis points on Wednesday as buyers looking for a quick win sold the bonds at higher prices, according to market participants.
"There were some guys that bought it for the quick flip and took a profit," one trader in California said in an interview. "We saw it run up three points and it's already back half a point less so that's not the market, but more reflective of the buys and sells going on."
Buyers in the primary market on Tuesday's initial offering may not have confidence in the island's efforts to repair its economy for the long haul, the trader said, instead opting for a short-term position. While hedge funds drove much of the buying in the sale, those buyers aren't the ones initiating selling, he said.
"It could also be funds or folks that don't have a lot of capital to settle on the bonds," the trader said. "Hedge funds did a lot of negotiating on the structure of this deal; I don't think they're in this for a three-point flip."
Trades on other Puerto Rico bonds were mixed, but mostly firming. Yields on 5% GOs in 2041 were stable around 7.37%, while the yield on the most actively traded Sales Tax Financing Corp. (COFINA) bonds was down 12 basis points to 7.18%.
Market activity was as much as 34% below the 100-day average by Thursday morning while Puerto Rico bond trading was 173% above the same average, according to Bloomberg. The term bond issued Tuesday will continue to be one of the most-traded securities in the market, traders and analysts said.
"That CUSIP will be the most liquid and the best performing CUSIP in the Puerto Rico universe for quite some time," Matt Fabian, managing director at Municipal Market Advisors, said in an interview.
Trades on the Puerto Rico bonds reached prices as high as 100 cents on the dollar Tuesday.
"It's one thing to buy Puerto risk at 93, 95, but at 102 or 105 it becomes a fair bit riskier," Fabian said. "It'll be a real interesting dynamic once it gets at or above par, to see if the volatility slows down."
Municipal bond yields measured by Municipal Market Data's AAA scale were steady across the curve. Treasury yields held firm, as the 30-year and the 10-year benchmark were both unchanged from Wednesday at 3.67% and 2.73%, respectfully. Two-year notes were two basis points higher at 0.39%.
with reporting by Maria Bonello and Hillary Flynn
