Investor confidence buoyed by last week's PREPA announcement carried over to Puerto Rico's general obligation bonds in trading on Monday.
Yields on the island's stymied GO bonds continued to tighten in secondary trading on Monday morning after contracting through Friday as well. Yields on the GO 8s of 2035 tightened to 9.104% by midday Monday in round lot trading, according to Municipal Securities Rulemaking Board's disclosure website EMMA. The drop was a nearly 20 basis point contraction from before the letter of credit announcement on Thursday evening.
Meanwhile, trading on PREPA paper itself came to a close on Friday and failed to continue its momentum into Monday trading. Prices on the electric power authority's 7s in 2043 climbed to 52 on Friday, the highest bid the debt has seen since plummeting into the mid-30s earlier this year.
Faced with the expiration of two integral letters of credits last week, the island's electric power authority, PREPA, announced an agreement had been reached that would extend the LOCs to the end of March 2015, as previously reported. Despite the delay, a restructuring is likely still the end game for PREPA, which would be the largest municipal bond default in U.S. history, as previously reported.
Elsewhere in the municipal market, Monday has promised to be a day of summer doldrums. No competitive deals over $10 million are scheduled, and only one negotiated deal over $50 million is slated for pricing. The week is not expected to pick up in tempo, with just $4.2 billion on the primary calendar, including the contested $593.7 million Rhode Island Tobacco Settlement Financing deal held up in court and likely not to come to market within the week.
The market has reflected the slow attitude, according Municipal Market Data's triple-A 5% scale. Across the curve yields have been mostly steady with a slight weakening. Bond maturing until 2020 are unchanged, while those maturing between 2022 and 2024 and 2038 and 2044 report a flat to two basis point rise. Bonds maturing in 2021 and 2025 to 2037 have seen yields rise up to one basis point.
The Treasury market weakened as well in the intermediate to long end of the curve. The 10- and 30-year both softened three points to 2.38% and 3.18% respectively, while the two-year held steady at 0.42%.
