Yields on bonds from Puerto Rico's $3.5 billion general obligation issuance in March began rising on Monday.
Yields for the commonwealth's benchmark GO with an 8% coupon maturing in 2035 increased by 21 basis points to 8.97% on Monday.
"I'm not surprised, the spread on high-yield stuff has come down to ridiculous levels so I'm not surprised to see them come back up," a trader in Chicago said.
Yields began rising after Puerto Rico reported that its corporate tax collection for April came in $380 million short of its government's projections, and total revenues for the month were 26% below expectations.
"From what I've been hearing-one of our people on the desk trades a fair amount of Puerto Rico-the revenue came in below expectations," a trader in New York said.
He said the low revenue is why the market has back off from the Puerto Rico paper a bit and why there has been a sell-off on the 8% coupon GO.
Rating agencies said Friday the Puerto Rico-based Doral Financial Corporation was likely to default on more than $150 million in municipal notes and bonds after regulators ruled that $289 million out of the bank's $679 million receivables could not be included in Tier 1 capital.
"A local bank in Puerto Rico potentially defaulting on $150 million in muni notes may be causing the sell-off," a trader in New York speculated.
There are no deals over $100 million slated for the negotiated or competitive market Monday.
"Tomorrow will probably be the telling point [of how strong the muni market is] when two large deals hit the market, we'll see how well they're absorbed," the trader in New York said.
Tuesday, Goldman, Sachs & Co. will bring $1 billion of New Jersey Turnpike Authority revenue bonds, the largest deal of the week. The deal received an A3 rating from Moody's Investors Service, an A-plus from Standard & Poor's and an A from Fitch Ratings.
J.P. Morgan Securities is also scheduled to price Tuesday $450 million of Metropolitan Washington Airports Authority revenue refunding bonds. The deal is rated Baa1 by Moody's and BBB-plus by S&P.
Citigroup Global Markets will also issue $514 million of Pennsylvania Turnpike Commission variable rate revenue bonds. The bonds mature serially from 2015 to 2021 and are rated A1 by Moody's and A-plus by both S&P and Fitch.
Municipal bond yields held steady throughout the curve on Monday.
Treasuries weakened Monday afternoon, with the 30-year yields inching up two basis points to 3.49% and the10-year benchmark climbing three basis points to 2.66%. The two-year notes were unchanged at 0.40% from Friday's market close.
