Investors including BlackRock Inc. and Vanguard Group Inc. say Puerto Rico’s finances hinge on its ability to carry out a planned debt sale this month after the territory’s credit rating was cut to junk.
Yields on some Puerto Rico bonds fell to a two-month low as investors said yesterday’s cut to junk status spurred buyers who had been delaying purchases in anticipation of a planned debt offer from the commonwealth.
Investors are pouring the most money since September into the riskiest U.S. local debt, a boon to lower-rated issuers such as Puerto Rico that plan to borrow in the $3.7 trillion municipal market in coming weeks.
California is poised to reclaim its spot as the biggest borrower in the municipal market after an improving budget outlook propelled the state’s debt in a year when taxes rose for its wealthiest residents.
Pacific Investment Management Co. and BlackRock Inc. say the entire $3.7 trillion municipal market is at risk should Puerto Rico lose its investment-grade status, even though many funds aren’t obliged to unload bonds cut to junk.
Puerto Rico may have its credit rating cut to junk in the fiscal year beginning July 1 as the commonwealth struggles with a shrinking economy, says Peter Hayes, head of municipal debt at New York-based BlackRock Inc.