Yields on bonds from Puerto Rico's March $3.5 billion general obligation issuance increased on Tuesday morning.
Yields for the benchmark 8% coupon maturing in 2035 rose two basis points to 8.80%, according to data provided by Bloomberg. This is nine basis points higher than the 8.71% bonds were trading at on Friday.
"When bonds traded up last week, it was kind of a knee-jerk reaction," a trader in Dallas said.
Trading volume for all Puerto Rico bonds is 52% below its 100-day average, and trading for the 8% coupon maturing in 2035 is 72.6% below its 100-day average.
This maturity began trading up last week after the commonwealth's Governor Alejandro Garcia Padilla gave a speech on Tuesday proposing a balanced budget for the territory by fiscal 2015.
"[Padilla] did make a good speech, it was well received by the investment community," the trader in Dallas said. "However, they still have the challenge of balancing the budget."
Triet Nguyen, managing partner at Axios Advisors, pointed out in a report published May 1 the governor's "balanced budget" is not quite structurally balanced since Puerto Rico is still relying on about $270 million of capitalized interest from the last GO deal to pay current debt service.
"$270 million 'real' deficit is still infinitely better than the billion-plus number that we were estimating a year ago," Nguyen wrote. "What remains to be seen, however, is the ultimate impact of such a contractionary budget on the PR economy."
J.R. Rieger, vice president of Fixed Income Indices at S&P Dow Jones Indices, said in a report published on Friday that municipal bond yields have fallen faster than U.S. corporate bond yields in 2014.
"Since year end, investment grade municipal bonds tracked in the S&P National AMT-Free Municipal Bond Index has seen its yield drop to 2.24% (down 87bps) while the S&P U.S. Issued Investment Grade Corporate Bond Index yield ended at 2.82% (down 28bps)," he wrote. "High yield municipal bonds, Puerto Rico and Tobacco Settlement bonds while volatile this year have shown strength as investors continue to seek incremental yield over low rate alternatives."
Barclays Capital will bring $260 million of tax allocation refunding bonds for the successor agency to the Inland Valley Development Agency Tuesday. The deal consists of a non-alternative minimum tax series and a federally taxable series. The bonds are rated A-minus by Standard & Poor's.
Citigroup Global Markets will issue $186 million of lease revenue bonds for the San Mateo County Joint Powers Financing Authority in California. The deal is rated AA-plus by S&P.
Barclays will bring $134.9 million of receipt revenue and refunding bonds for the University of Miami, Ohio. The deal is rated Aa3 by Moody's Investors Service and AA by Fitch Ratings.
The Delaware Transportation Authority will issue $113.3 million of revenue bonds Tuesday, the largest competitive deal of the week. The bonds are not rated.
Treasuries were steady Tuesday morning, with the 30-year and the two-year note yields remaining at 3.40% and 0.43%, respectively, from Monday's market close. The 10-year benchmark strengthened, slipping one basis point to 2.60%.
