Trading on Puerto Rico Electric Power Authority bonds spiked on Tuesday after the authority was given an extension on bank credit payments it had due in early July.
Trading on all PREPA bonds is currently 821.7% above its 100-day average, according to data provided by Bloomberg. This has boosted trading on all Puerto Rico bonds, which are currently 182.7% above their 100-day average.
"[The spike in Puerto Rico trading] really revolved around PREPA, the GOs have been fairly stable, probably coming off a couple points from where they've been trading a couple weeks ago," a trader in Virginia said. "PREPA decided to sell-off after the commonwealth announced a new law allowing state authorities to restructure debt in a different manner. There was the announcement yesterday that PREPA had extended the time frame for repayment of some of its credit lines. It was mainly to do with their bank credit lines, to extend the time frame for repayment of some of those lines."
PREPA was supposed to pay Citibank $10 million on its $146 million line of credit on July 3, and was supposed to finish paying Citi back by mid-August.
A spokeswoman for PREPA announced on Monday that it had negotiated with its lenders, and can delay certain payments until July 31.
"On one hand this buys PREPA a little bit more time, but it goes to show how fragile their liquidity is, and how much the heightened possibility that some type of restructuring will have to take place," the trader said, " There is still a great deal of uncertainty surrounding Puerto Rico's future."
The 6.25s of 2036 that account for most PREPA's trading volume appear to be strengthening, with Bloomberg data indicating yields fell to 16.76% on Tuesday, the lowest they have dropped in July.
The bonds that account for the second largest chunk of PREPA trading volume, the 5s of 2021, saw yields fall to 21.06%, also their lowest this month. On Monday they were trading at 24.1%.
The trader in Virginia said he saw a $100 million Puerto Rico bid list Tuesday morning.
Secondary data from Markit shows PREPA 5.75s of 2036 have a trade amount of $5 million, with a trade bid price of 41.5 and a trade bid yield of 14.8%.
The authority's 5.5s of 2038 have a trade amount of $5,000,001, and are also trading at a bid price of 41.5 but have a slightly lower bid yield of 14.05%
The trader in Virginia said that he does not see Puerto Rico sellers having a problem with finding bids.
"I feel like I'm seeing a lot of quoted two-sided markets from the street, I think there are buyers," he said. "It's just a matter of how comfortable a seller can get with their execution levels, can you get comfortable selling them after they've sold off that much? If you were holding PREPAs in the 60s and now they're at 40, it's not finding a bid, it's getting comfortable with that potential loss. I think liquidity is holding up in Puerto Rico markets for now. It's just that some of the bid levels have come way down."
Municipal bonds sold off on Tuesday afternoon with yields for maturities from five to seven years rising as much as two basis points, as much as one basis point for eight- to 16-year maturities, and as much as two for 17- to 30-year maturities.
Treasuries strengthened Tuesday, with the 30-year yield and the 10-year benchmark falling six basis points each to 3.38% and 2.56%, respectively. The two-year note slipped one basis point to 0.51%.
