Market Post: Munis Trade Down as Puerto Rico Slide Continues

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Municipal bond prices on the long end were lower Tuesday morning, according to Municipal Market Data's AAA scale, as Puerto Rico 8%-coupon bonds extend losses into a third day.

The newly-issued Puerto Rico general obligations maturing in 2035 traded as low as 87.13 cents on the dollar, pushing the average yield up to 9.38%, according to data from Bloomberg.

The bonds began weakening Friday as nontraditional bondholders like hedge funds sold the bonds ahead of the island's Supreme Court ruling that parts of the commonwealth's teachers' pension reform plan were unconstitutional.

Municipal bond yields were mixed, with bonds maturing from 2022 through 2033 gaining as much as one basis point. Yields on bonds maturing beyond 2034 jumped as much as two basis points, while those maturing from 2020 through 2021 held steady. Activity on the short end was under review by MMD.

Total potential volume this week, which is short due to a closed market on Good Friday, is $2.6 billion, down from $4.39 billion last week, according to data provided by Ipreo and The Bond Buyer.

Barclay's Capital Markets will bring $200 million of sales tax bonds for the Massachusetts Bay Transportation Authority to market Tuesday, the largest negotiated deal of the week. The bonds are rated Aa2 by Moody's Investors Services and AAA by Standard & Poor's.

In the competitive market, Florence County, South Carolina will issue $125 million of general obligation bonds Tuesday. First Tryon Advisors is the lead underwriter and the bonds are rated AA2 by Moody's and AA-minus by S&P.

Washington Suburban, Maryland will issue $150 million of consolidated public improvement bonds, which are rated AAA by Moody's.

Treasuries weakened Tuesday morning, with 10-year benchmark and two-year note yields gaining one basis point to 2.65% and 0.39%, respectively. The 30-year yields were unchanged at 3.49% from Monday's market close.

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