Puerto Rico bonds on Thursday continued their week-long rise as investors gained heart from the latest financial plan from the island's government.

This week, Gov. Ricardo Rosselló submitted a financial plan to the Oversight Board in which he suggested the government could pay debt service between 8.1% and 14.1% on bonds due through fiscal 2023. A prior proposal included no debt service through fiscal 2022.

“We are seeing quite the rally in Puerto Rico debt in response to better- than-expected news out of the troubled island's financial plan,” said an analyst at HIS Markit. “Puerto Rico's benchmark 8% GO bonds due in 2035 traded as high as $30.5 on Thursday, well above its price of $25 on Monday.”

Among actively traded issues, the Commonwealth’s benchmark Series 2014A GO 8s of 2035 were trading at a high price of 32.25 cents on the dollar on Thursday, according to the MSRB’s EMMA website, up from a high price of 30.15 cents on the dollar on Wednesday, 27.5 cents on Tuesday and 25 cents on Monday.

Thursday’s volume on this maturity totaled $100.46 million, compared with $127.84 million on Wednesday and $60.58 million on Tuesday.

Puerto Rico Gov. Ricardo Rossello and Virgin Islands Gov. Kenneth Mapp testifying to U.S. Senate about hurricanes' impact
Puerto Rico Gov. Ricardo Rossello, left, and Virgin Islands Gov. Kenneth Mapp, next to him, before a U.S. Senate committee Brian Tumulty

Among other actively traded issues on Thursday, the Commonwealth’s Series 2012A GO public improvement refunding 5s of 2041 rose to a high price of 32.25 cents on the dollar, from 28 cents on Wednesday, 25.5 cents Tuesday and 23.752 cents on Monday, according to EMMA.

Volume Thursday surged to $20.5 million from $560,000 on Wednesday.

And the Puerto Rico Sales Tax Financing Corp.’s Series 2007B 6.05s of 2036 jumped to 55 cents on the dollar from 50.5 cents on Wednesday, 49 cents on Tuesday and 47.375 on Monday.

Volume Thursday climbed to $4.19 million from $3.59 million on Wednesday.

Muni market wary of rising yields
A New York trader said the buyside is still reeling from a 50 basis point increase in the 10-year Municipal Market Data yield since the beginning of the year, and exhibited much concern about that movement on Thursday afternoon in the backdrop of rates moving even higher.

“You’ve had a sea change in the way people see rates in general and their outlook on rates have changed a lot in the last six weeks,” he added. “I think retail is taking a pause and they are concerned about rates,” he said.

In addition, he said the market itself was a little off balance.

“I’d say in general the market is still trying to find some footing,” the trader said.

“There’s a lot of cross currents in a market where rates are drifting and the Street is in a challenging position right now.”

Supply concerns are also worrying investors, but next week’s slate of $6 billion may alleviate some supply concerns.

“We continue to not have a whole lot of supply in the market and there’s a reasonable amount of bid wanteds,” the trader said.

“There are only pockets of interest. I think the money that’s been flowing into the funds has been patient with this back off,” he said. “In general the market is a little wary after the big supply trade in December -- many hoped it would see tightening in January -- but the Street is fairly beat up and munis have not performed that great in here.”

While the trader said credit spreads have gotten a little cheaper, and there were 4% coupon structures that were underperforming on Thursday -- it’s still a challenging market.

“The jury is still out as far as insurance companies and what they will have to do and what tax changes mean for them,” he said.

However, some municipal shops are seeing retail peeking at the new levels.

“The increase in municipal yields certainly seems to have piqued the retail investors’ interest,” said Bill Walsh, a partner at the Parsippany, N.J.-based investment services provider Hennion & Walsh. “Retail seems to like the new levels and are selectively buying,” most notably the 4% at par opportunities, he added.

He did acknowledge underlying concern over rates, but said that isn’t interfering with buyers' renewed interest.

“Although there may be a bit of hesitation with the potential of further price decline, they seem to be liking some of these yields at this new level,” he said.

Deals from this week seem to be doing well in the after market. He said the Pennsylvania tobacco deal “seems to have been well received and is now trading up in spots.”

ICI: Long-term muni funds see $584M outflow
Long-term municipal bond funds saw an outflow of $584 million in the week ended Feb. 7, the Investment Company Institute reported on Wednesday.

This followed an inflow of $1.89 billion into the tax-exempt mutual funds in the week ended Jan. 31 and inflows of $2.46 billion, $2.46 billion, $3.16 billion and $509 million in the previous four weeks.

Taxable bond funds saw estimated inflows of $7.85 billion in the latest reporting week, after experiencing inflows of $7.36 billion in the previous week.

ICI said the total estimated outflows to long-term mutual funds and exchange-traded funds were $27.36 billion for the week ended Feb. 7, after inflows of $21.87 billion in the prior week.

Tax-exempt money market funds see $338.5M outflow
Tax-exempt money market funds experienced outflows of $338.5 million, bringing total net assets to $138.02 billion in the week ended Feb. 13, according to The Money Fund Report, a service of iMoneyNet.com. This followed an inflow of $841.3 million on to $138.36 billion in the previous week.

The average, seven-day simple yield for the 197 weekly reporting tax-exempt funds fell to 0.55% from 0.62% the previous week.

The total net assets of the 827 weekly reporting taxable money funds increased $14.34 billion to $2.660 trillion in the week ended Feb. 12, after an inflow of $7.85 billion to $2.646 trillion the week before.

The average, seven-day simple yield for the taxable money funds increased to 0.99% from 0.98% from the prior week.

Overall, the combined total net assets of the 1,024 weekly reporting money funds increased $14.00 billion to $2.798 trillion in the week ended Feb. 12, after inflows of $8.69 billion to $2.784 trillion in the prior week.

Previous session's activity
The Municipal Securities Rulemaking Board reported 44,918 trades on Wednesday on volume of $13.07 billion.

New York, California and Texas were the three states with the most trades, with the Golden State taking 12.325% of the market, the Empire State taking 10.206% and the Lone Star State taking 10.108%.

Treasury sells 30-year TIPs
The Treasury Department Thursday sold $7 billion of inflation-indexed 30-year bonds at a 1.003% high yield, an adjusted price of 99.895379, with a 1% coupon. The bid-to-cover ratio was 2.31.

Tenders at the market-clearing yield were allotted 42.76%. Among competitive tenders, the median yield was 0.933% and the low yield was 0.900%, Treasury said.

Treasury announces bill auctions
The Treasury Department on Thursday announced it would sell $29 billion of seven-year notes on Feb. 22; $35 billion of five-year notes on Feb. 21; $28 billion of two-year notes on Feb. 20; $45 billion of 182-day bills on Feb. 20; $51 billion of 91-day bills on Feb. 20; $55 billion of 28-day bills on Feb. 20; and $15 billion of one-year 11-month floating rate notes on Feb. 21.

Gary Siegel contributed to this report.

Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8474 for more information.

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