The investment grade municipal bond market traded lower Thursday, following Treasuries, though most traders eyed higher yielding bonds out of Puerto Rico in the secondary.

Puerto Rico took most of the attention following news Wednesday that the Massachusetts secretary of the commonwealth sent letters to large mutual fund managers inquiring about exposure to the territory’s credit and an announcement the island’s government would hold an investor call next Tuesday to discuss its financial situation.

Puerto Rico bonds also traded lower, particularly its Sales Tax Financing Corp. bonds, following the COFINA downgrade on Oct. 3 to A2 from Aa3 by Moody’s Investors Service.

One New York trader said there was a bid list with “a bunch of Puerto Rico items” of $2 million blocks and bigger out Thursday. Some of the bonds traded. Other traders said sellers had left the market and trading volume of Puerto Rican debt was down.

The most active bonds trading were COFINAs. In block size trading, the subordinate COFINA 5.25s of 2043, rated A3 by Moody’s and A-plus by Standard & Poor’s and Fitch Ratings, traded at 8.35% and 8.31%.

Still, volume was down compared to the average of the previous five Thursdays. “People are holding on to bonds because yields are so high,” one Chicago trader said. COFINA was the top issuer in Puerto Rico volume Thursday, but it was still down 60.8% from the previous five Thursdays with $66.275 million traded.

Interactive Data showed there were 86 trades of over $1 million by mid-afternoon of all Puerto Rico debt. That is up from last Thursday when Puerto Rico debt saw 62 trades of over $1 million.

“There are a ton of bids wanted, but nothing is really going on with them. It’s small trading mostly.”

Trades compiled by data provider Markit also showed weakening. COFINA 0s of 2045 rose seven basis points to 7.05% and COFINA 0s of 2054 increased five basis points to 7.08%.

Other issuers in Puerto Rico saw bond prices fall. A $5 million trade of Puerto Rico Public Building Authority 5s of 2015 traded at 4.53% with insurance from Assured Guaranty Municipal Corp.

One CUSIP of Puerto Rico Aqueduct and Sewer Authority 5.25s of 2024 was sold by a customer in a block-size trade at 68.75 or a 10.087% yield. The last block-size trade on the CUSIP was in early May, before the summer’s historic municipal bond selloff, when the bonds traded at par.

Another CUSIP of $5 million PRASA 6.125s of 2024 were bought and sold by a customer at 71.62, with a 10.621% yield, and 71.125, or a 10.72% yield. The last time over $1 million of the bonds traded was in May.

Puerto Rico Public Improvement 6s of 2038 fell down to 66 cents on the dollar Thursday in a block size trade. Government Development Bank 5.5s of 2020 rose five basis points to 13.41%, falling down to 64 cents on the dollar.

“People don’t care about the ratings anymore. You are just asking for a dollar price,” an analyst in New York said. “I look at where GOs are trading and the ratings and it’s not even close to being consistent. The market is treating them as junk. A 50 handle of Puerto Rico GOs and a triple-B rating do not belong in the same book. One is porn, the other is Disney.”

This analyst said that once bonds are trading on a dollar price basis, as opposed to a yield basis, investors are looking at recovery ratios. “We are looking at what can I get back on my dollar?  It means we are waiting for the lawyers and the judges to come in and tell us what we can get.”

Another issue on investors’ minds is if, or when, the ratings agencies will downgrade the commonwealth to junk status. The GO debt is currently rated one notch above junk. “Anyone with a covenant that says no high-yield will be forced to sell.”

This analyst said a lot of new players are coming into the market, including hedge funds, who are non-traditional buyers. “Secured and unsecured is a new word in the market,” he said. “Nothing has happened in Detroit. But if something did and the GOs are considered different than revenues in a bankruptcy settlement, then that could be a legal precedent.”

Bonds in the general market were mostly weaker Thursday. Yields on New Jersey Tobacco Settlement Financing Corp. 4.5s of 2023 rose five basis points to 5.53% and Austin Electric Utility System 5s of 2025 increased three basis points to 3.34%, according to Markit.

Yields on South Carolina Public Service Authority 5s of 2048 and Triborough Bridge And Tunnel Authority 5s of 2028 rose one basis point each to 5.15% and 3.80%, respectively.

In the primary market, JPMorgan won the bid for $228.1 million of Washington GOs in two pricings, including $120.2 million of various purpose GO refunding bonds and $107.9 million of motor vehicle fuel tax GO refunding bonds.

On Thursday, yields on the triple-A Municipal Market Data scale ended as much as four basis points higher. The 10-year and 30-year yields rose four basis points each to 2.60% and 4.18%, respectively. The two-year yield fell two basis points to 0.35%.

Yields on the Municipal Market Advisors benchmark scale also ended as much as four basis points higher. The 10-year yield increased two basis points to 2.74% and the 30-year yield climbed three basis points to 4.33%. The two-year was steady at 0.55% for the third session.

Treasuries were mostly weaker. The benchmark 10-year yield rose two basis points to 2.69% and the 30-year yield increased two basis points to 3.75%. The two-year yield fell two basis points to 0.35%.

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