Puerto Rico Highways and Transportation Authority bonds traded weaker Friday after reports the Authority may default on its bonds, even though Puerto Rico Government Development Bank president Javier Ferrer refuted the claim.
The bonds traded lower in an overall softer market.
“There are a lot of bids-wanted for Puerto Rico highway bonds on the street,” a New York trader said. “We had a big hit; down 20 basis points. Maybe this is retail bailing.”
He added that while there were a lot of bonds out for the bid, some traders see this as a buying opportunity. “There is a bid side for it. But some people don’t believe the story and are looking to pick up cheap bonds and take advantage of retail selling cheap.”
Others said Puerto Rico bonds were cheap even before the news surfaced. “Before the highway news, the bids we were getting on our small Puerto Rico bonds were not that good,” a second New York trader said. “We don’t own the general obligation bonds or the highways, but all the names were getting caught in the wake.”
Still, other traders said the ripple effect was muted and Puerto Rico bonds outside GOs and the highway bonds were not feeling pushback in light of the rumors.
Puerto Rico bonds aside, the general market was weaker, following Treasuries. “My guess is that with Treasuries off as much as they are and given that it’s a Friday, no one is looking to buy anything unless it’s cheap,” a trader in Ohio said. “And no one that owns bonds is too willing to hit a down bid with limited supply coming next week. Stalemate.”
Municipal bond scales ended several basis points weaker Friday after posting a mix of gains and losses earlier in the week.
Yields on the Municipal Market Data triple-A GO scale finished as much as five basis points higher. The 10-year and 30-year yields spiked up six basis points each to 1.81% and 2.93%, respectively. The two-year was steady at 0.28% for the second session.
Yields on the Municipal Market Advisors 5% scale ended as much as five basis points higher. The 10-year and 30-year yields jumped five basis points each to 1.85% and 3.06%, respectively. The two-year yield increased one basis point to 0.33%.
Treasuries also posted losses Friday. The benchmark 10-year yield increased eight basis points to 1.90% and the 30-year yield spiked 11 basis points to 3.10%. The two-year yield rose two basis points to 0.25%.
Looking to next week, $6.45 billion is expected to be issued, up from this week’s revised $5.24 billion. In negotiated deals, $5.05 billion should be priced, up from this week’s revised $3.27 billion. On the competitive calendar, $1.40 billion is expected to be auctioned, down from this week’s revised $1.97 billion.