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Post by Logan on Jun 19, 2016 6:04:13 GMT -6
United States held municipal bonds have reached peak investment. Despite record-low yields due to consistently low interest rates, record high investment led municipal bond funds to accrue $632 billion in assets as of June 1. This comes in direct contrast to Puerto Rican municipal bonds. Reduced to junk status in 2014 by three major credit agencies, the island’s local, state, and national tax-exempt bonds make up the vast majority of its $70 billion debt. On May 1, Puerto Rico defaulted on the first major scheduled payment on its municipal bonds. Gov. Alejandro García Padilla warns that the country will likely default on the fast approaching July 1 payment on its general obligation bond debt. Puerto Rico must restructure its debt to meet upcoming bond payments, but pending legislation will need to pass through Congress in order to prevent the default. Puerto Rican municipal bonds often exert an oversized influence on the entirety of the US bond market. The tax-exempt status of most Puerto Rican bonds made them an extremely popular investment during more prosperous periods in the debt-riddled island’s history. Perpetual Puerto Rican bond debt should harm the overall US bond market. Hence, the continued high quality and relative stability of US-issued municipal bonds is relatively unexpected. Read more: pasquines.us/2016/06/13/puerto-rico-and-the-state-of-the-us-bond-market/
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