Hurricane Maria slammed into Puerto Rico today as a Category 5 storm. Our hearts and prayers go out to the citizens of Puerto Rico, as we know this storm will cause extensive damage to the Commonwealth.
Though uninsured Puerto Rico bonds have traded somewhat lower in price, insured Puerto Rico debt has actually traded up in price (down in yield) since last week’s Hurricane Irma ripped into the Virgin Islands, also a US Commonwealth. We don’t know what the aftermath of the hurricanes will be, but there will clearly be Federal help to rebuild the infrastructure of both the Virgin Islands and Puerto Rico. To the extent that Federal aid promotes the rebuilding of infrastructure in Puerto Rico, there may be a positive effect on the finances of the major issuers down the road. The bond insurers, who are already paying interest on defaulted Puerto Rico debt, may see some improvement in the fortunes of the issuers and can perhaps resume paying debt sooner, rather than later. That is our best reasoning on the improvement we have seen in insured Puerto Rico bonds over the last week.
We will keep readers informed.
John R. Mousseau, CFA
Executive Vice President & Director of Fixed Income
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