Trading volume on Puerto Rico bonds has dropped to the lowest level since the commonwealth issued $3.5 billion of general obligation bonds earlier this month.
"It is getting close to the end of a quarter, so it is reasonable that there are firms that will not want to report as much Puerto Rico on their books," said Matt Fabian, managing director at Municipal Market Advisors.
On Friday, trading of Puerto Rico bonds dropped 71.4% below the 100-day average, according to data provided by Bloomberg. The commonwealth is no longer among the 10 most traded states or territories, falling to 23rd as the 8% bonds of 2035's volume was 81.2% below the 100-day average. These bonds have recently accounted for 53.4% of Puerto Rico GO trades.
On Monday, the bonds' yield rose to 8.76%, their highest level.
The bonds were issued March 11 with a yield of 8.73% and strengthened by as much as 40 basis points upon entering secondary market trading. Non-traditional cross-over buyers who purchased the initial sale quickly took profits, market participants said, sending yields back up and erasing most of the price gains.
Yields for the 2035 maturities are currently 8.68%, according to data provided by Bloomberg.
"In general, pricing can weaken at the end of the quarter because firms are trying to shed Puerto Rico exposure," Fabian said. "They do not want to show it in their quarterly reports."
Investors say the bonds will keep trading heavily during the beginning of Q2 despite their poor credit rating, because their yield remains high.
"The bonds keep being traded because of their yield," a trader on the west coast said. "That and because the default rate in munis is very low."
Fabian said that the bonds should see a rebound at the beginning of the next quarter.
Bank of America Merrill Lynch received the written award on $236.3 million Orlando, Fla., contract tourist development tax payment revenue bonds. Yields ranged from 0.59% with a 4% coupon in 2016 to 4.19% with a 5% coupon in 2044. The bonds are callable at par in 2024 with a lot sinking fund for the 2039 and 2044 term bonds. The bonds received a Aa2 rating from Moody's and AA-plus from Fitch.
After opening steady Friday morning, municipal bond yields became mixed, with maturities ranging from 2018 to 2023 falling as much as one basis point. Yields on bonds maturing beyond 2035 gained as much as two basis points. While the short end of the curve and yields on maturities ranging from 2024 to 2034 were steady, according to the Municipal Market Advisors scale.
Treasury yields softened Friday, as the10-year benchmark dropped four basis points to 2.73% and the 30-year yields slipped three basis points to 3.56%. Two-year notes were unchanged at 0.46%.
