Over the past month, hedge funds and other investors dumped more than $2.5 billion of debt they received in Puerto Rico’s record restructuring, a sell-off that made the sales-tax-backed securities the most actively traded in the municipal-debt market, Bloomberg reported. Yet the prices haven’t crashed — and the flood did little, if anything, to dampen the gains for other tax-exempt junk bonds. The performance shows that the $3.8 trillion municipal market weathered a major test from Puerto Rico’s bankruptcy. The debt restructuring had raised concern that the speculative corner of the market would struggle to absorb the billions of dollars of new debt, pushing up yields on Puerto Rico’s new securities and other high-risk debt competing for limited space in investors’ portfolios. The new batch of restructured debt hit the secondary market in February after Puerto Rico issued $12 billion of non-rated sales-tax bonds, called Cofinas, to investors who traded in their outstanding securities, cutting more than $5 billion of the island’s troubled debt. Since then, high-yield municipals have earned 1.2 percent, more than the 0.8 percent advance in the broader tax-exempt market, according to Bloomberg Barclays indexes.
