Trading on bonds from the commonwealth of Puerto Rico plummeted, as yields from its March $3.5 billion general obligation issuance rose to levels seen in April.
Commonwealth of Puerto Rico bonds are trading 86.6% below its 100-day average on Wednesday, according to data provided by Bloomberg.
"The Puerto Rico economy does not look great right now, they might have to give a tender to their bondholders, like what Jefferson County did," a trader in New York said.
Yields on the benchmark 8% GO of 2035 moved up to 9.08%, according to data provided by Bloomberg. The benchmark GO's yields have remained above 9% all week, levels it had not previously reached since the end of last month.
Yields began increasing Monday after Puerto Rico reported its corporate tax collection for April came in $380 million short of it government projections. This made the commonwealth's total revenues for the month 26% below expectations.
Before the report, yields on the benchmark bonds had been falling, spurred by a speech Puerto Rico Governor Alejandro Garcia Padilla gave on April 29, in which he promised to balance the budget by fiscal 2015.
"For us, Puerto Rico trades like an equity now," a trader in Chicago said. "It reacts to news. It is price sensitive to news that comes out, and you don't see that a lot in the municipal market. Whenever there's a headline, that GO, the super GO reacts."
Municipal yields continued to fall on Wednesday with yields dropping by as much as one basis point for bonds maturing in three years, by up to two basis points for four-year maturities, and from one to three years for five-year maturities.
Yields declined from two to four basis points for six- to nine-year maturities, between three and five basis points for 10- to 12-year bonds, from four to six basis points for 13- to 23-year bonds, and between five and seven basis points for bonds maturing in 24 to 30 years.
"We're seeing a lot of strength in the market, there's a lot of money chasing too few bonds," a trader in Dallas said.
Bank of America Merrill Lynch is expected to bring $153.4 million of Jacksonville Electric Authority revenue bonds to the market Wednesday. The bonds received an Aa2 rating by Moody's Investors Service, AA-minus by Standard and Poor's and AA by Fitch Ratings.
JP Morgan Securities repriced the Metropolitan Washington Airports Authority second senior revenue bonds to $429.6 million on Wednesday. Yields came in at 4.40% with a 5% coupon maturing in 2053. The bonds are callable at par in 2022. The deal is rated Baa1 by Moody's, and BBB-plus by S&P.
Treasuries strengthened Wednesday afternoon, with 30-year yields falling seven basis points to 3.38% and the 10-year benchmark slipping six basis points to 2.54%. The two-year note slid two basis points to 0.37%.
