Puerto Rico

With new issuance at dismal levels and investors gearing up for a three-day weekend, participants in the municipal bond market this week are focusing their attention on the impact of a second downgrade on Puerto Rico debt.

Moody's Investors Service on Friday delivered a two-notch downgrade to Puerto Rico's general obligation bonds, a deeper, more far reaching cut than the one imposed by Standard & Poor's three days earlier.

Puerto Rico's planned debt issue may still find demand among mutual funds after the commonwealth was cut to a junk grade by Standard & Poor's, even though some fund managers are restricted from buying speculative paper.

The Puerto Rico government may emphasize cutting spending in its effort to balance its budget, said its budget director Carlos Rivas.

Puerto Rico's governor, vowing to repair the island's damaged credit after Standard & Poor's cut its ratings to junk, said the commonwealth is going ahead with a bond sale in the next few weeks.

Congressional and Treasury sources said Puerto Rico won't get direct financial help in the wake of its downgrade.

Puerto Rico bonds were trading on pace with levels seen in recent weeks, market participants said, lending credibility to the argument by some that a downgrade to junk had been long-anticipated by the municipal market.

Standard & Poor's downgraded Puerto Rico's general obligation bonds to a speculative rating, pointing to what it said was the commonwealth's limited liquidity.

Puerto Rico's plan to adopt a balanced budget may not be enough to sway the ratings agencies considering downgrading the commonwealth.

Puerto Rico Gov. Alejandro García Padilla said Friday that he planned to propose a budget with little or no deficit for the coming fiscal year.