Market Close: Puerto Rico 8% Coupons Post Biggest Weekly Loss

Puerto Rico's 8% coupon bonds issued in the island's $3.5 billion deal capped off the worst weekly performance since they were issued on March 11.

The bonds, which mature in 2035, fell 3.9% to an average price of 87.39 cents on the dollar Friday, from 90.89 cents on April 10, according to data from Bloomberg. The lowest trade Friday posted at 86.75 cents on the dollar.

The bonds began weakening last 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.

Puerto Rico Commonwealth bonds were the seventh-most traded bonds on the week, according to MSRB data. Trading volume in the market overall was about $4.5 billion at market close, the lowest amount of activity in the market in at least three months.

Investors expected a quiet day as the municipal bond market closed at 2 p.m. and will remain closed for the Good Friday holiday.

Munis were mostly steady Thursday, according to Municipal Market Data's AAA scale. Bonds maturing from 2022 to 2023 firmed by as much as one basis point, while yields on the short and long end of the curve were unchanged.

"We got a little bit of weakness in Treasuries, but it doesn't matter because munis are not following Treasuries this week," one Virginia-based trader said in an interview.

Longer-term Treasuries weakened, with the 30-year climbing four basis points to 3.52% and the 10-year benchmark jumping five basis points to 2.73%. The two-year notes held steady at 0.40%.

Longer-term Treasuries weakened Thursday morning, with the 30-year climbing three basis points to 3.48% and the 10-year benchmark jumping four basis points to 2.68%. The two-year notes slipped two basis points to 0.38%.

Next week could test the market's strength, as many participants continue to pin firm yields on a lack of issuance. Total volume next week could reach $7.5 billion in deals, more than tripling this week's $2.1 billion of issuance, according to data from Ipreo and The Bond Buyer.

RBC Capital Markets brought a three-part deal to market Thursday totaling $126.9 million for the city of Cincinnati.

Yields on bonds for the largest chunk, $116.6 million of unlimited tax various purpose improvement and refunding general obligation bonds, ranged from 0.18% with a 2% coupon in 2014 to 3.70% with a 5% coupon in 2034. The bonds are callable at par in 2022.

There were no competitive deals over $100 million in the competitive market slated for issuance Thursday.

On Wednesday, Raymond James & Associates brought $121.3 million of gasoline and fuel tax second lien revenue refunding bonds to the market for the state of Louisiana.

The bonds were priced at par to yield 0.576% in 2043. The bonds are callable at par in 2017 and feature a mandatory tender in 2018. The bonds are rated Aa2 by Moody's, AA by S&P and AA-minus by Fitch Ratings.

Jobless claims released Thursday by the Department of Labor indicated a strengthening economy, with claims at 304,000, compared with estimates by economists of as much as 325,000.

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