Puerto Rico is heading toward a $3.5 billion bond offering this month which would be used to help stabilize the island's finances and pay interest on its $70 billion in current debt. A major question arises as to whether investors in this new debt will be given priority over existing investors who are largely Mom and Pop investors.
Not everyone in Puerto Rico is a fan of the new bond offering.
According to an Associated Press report, senators who voted against the $3.5 billion offering said it would "force Puerto Rico deeper into debt and warned that the government would not likely be able to pay the money back."
Regardless, some "alternative" investors like hedge funds are licking their chops over the offering, for both the juicy 10% yields on the Puerto Rico junk bonds as well as the favorable terms they can extract from the island commonwealth because
The City of Detroit filed for bankruptcy on July 18, 2013. In this note we analyze the bond market view of City of Detroit bonds from the perspective of one large size, long maturity bond issued in 2010. We analyze the evolution of credit spreads from the issue date through yesterday, that is, both before and after bankruptcy. We note that the credit default swaps on the City of Detroit have never traded according to the data provided by the Depository Trust & Clearing Corporation, so the bond market is the dominant source of information on the market's view.
Conclusion: City of Detroit bonds show the expected widening of credit spreads around the July 18, 2013, bankruptcy date. Even so, credit spreads have been well below the credit spread levels for bonds issued by various Puerto Rico-related entities. Moreover, recent developments in the City's bankruptcy proceedings have driven credit
It's been a tough road for bond investors over the past year. After a long period of time during which interest rates were falling or were relatively stable, we finally saw a long-awaited spike in rates in the middle of last year, with higher overall volatility levels in bond markets than many are used to (as a reminder, when rates rise, the prices of bonds falls).
The start of 2014 has continued this pattern of volatile activity- rates are actually lower today than they were at the start of the year and the outlook for bonds remains uncertain. So what should investors expect from here? And how can they position their portfolios?
Forecasting is always a tricky business, but we do believe there are some important factors that will shape the future direction of the bond market and that will have an impact on the way investors should approach