Puerto Rico 8%-coupon bond prices continued to slide Monday, pushing yield up by another five basis points from Friday.
Average yield on the bonds, which mature in 2035, were 9.34% on Monday morning, following a 33-basis point jump on Friday that market participants said was likely driven by selling by nontraditional bondholders like hedge funds.
"This morning I got a post that it was trading in the 86 range," a trader in New York said. "I think there's more room to go, I think it will continue to go down."
The GO's prices began falling on Friday, with trades posting as low as 86 cents on the dollar, compared with 96.6 cents the day the bonds became free to trade in the secondary.
"There were two million bonds on Friday that traded at 88, and I heard there was an 86 post," the trader in New York said. "Apparently there was a trade that went off at 86, 86.5."
The Commonwealth GOs were downgraded to junk by the three major credit rating agencies right before they entered the market on March 11. The bonds had an initial rally in the first day of secondary trading, but trading volume slowed and Puerto Rico has dropped out of the top 10 most actively traded U.S. states and territories. It is currently the 19th most traded U.S. region, according to data provided by Bloomberg.
"The investor euphoria we noted last month regarding the highly successful Puerto Rico general obligation bond sale was short-lived ,with market levels now hovering near the original issuance after a sharp, but short, rally weeks ago," Morgan Stanley said in a report published on Friday.
Yields began steadily rising during the second half of March, eventually reaching above the 8.73% the 2035 maturity with the 8% coupon was originally issued at.
"I think there's a lot of them in the market, there are billions of them," the trader in New York said. "Some people are seeing them go down and are going to cut their losses."
In the broader municipal market, yields for long-term bonds rose slightly on Monday morning, after a six-day rally. Yields going out 14-to 30-years on the curve increased by as much as one basis point, while maturities for up to 13-years held steady.
In a report released on Monday, Janney Capital Markets said that new issuance for the week was non-existent heading into a holiday week and weekend.
Total volume for the week is expected to be $2.6 billion, down from $4.4 billion last week, according to data provided by Ipreo and The Bond Buyer.
"I think there will be a big food fight over allocations for new issuance for sure," the trader in New York said.
There are no deals over $100 million in both the negotiated and competitive market Monday.
Barclay's Capital Markets will bring $200 million of sales tax bonds for the Massachusetts Bay Transportation Authority to market Tuesday, the largest deal of the week. The bonds are rated Aa2 by Moody's Investor Services and AAA by Standard and Poor's.
Raymond James & Associates Inc., will issue $197.5 million of revenue and refunding bonds for the New Jersey Educational Facilities Authority on Wednesday. The bonds mature serially from 2015 through 2033 and are rated A1 by Moody's, A by S&P and A-plus by Fitch Ratings.
RBC Capital Markets will bring a three part-deal totaling $112.3 million for the city of Cincinnati market later this week. The deal will consist of various purposes unlimited tax general obligation improvements and refunding bonds, public building improvement UTGO bonds and police and fire pension UTGO bonds. All bonds are rated Aa2 by Moody's and AA-minus by S&P.
The largest deal of the week in the competitive market will be issued by North Carolina for $321.1 million of general obligation bonds. The deal is rated AAA by all three major rating agencies.
Treasuries stronger Monday morning, with the 10-year benchmark and the two-year notes falling two basis points each to 2.64% and 0.38%, respectively. The 30-year yields slid one basis point to 3.48%.
