Puerto Rico, the U.S. territory still in the midst of a four-year-long bankruptcy, is seizing on demand for risky bonds, Bloomberg News reported. The Puerto Rico Aqueduct and Sewer Authority, the island’s main water supplier, is planning to refinance as much as $1.8 billion of debt after the yield penalty it faces in the bond market tumbled. It would be the biggest high-yield municipal debt deal since Ohio’s sale of more than $3 billion tobacco-settlement bonds in February 2020, according to data compiled by Bloomberg. The growing confidence among investors that the Federal Reserve is poised to keep interest rates low as the U.S. economy rebounds has fueled demand for high-yield securities across the world’s bond markets. The riskiest municipal securities are no exception, with junk-bond yields sliding from 3.72% in mid-March to 3.55%, not far from the lows seen before the pandemic shutdowns began in the U.S., according to a Bloomberg Barclays index. High-yield municipal-debt funds picked up $821 million of cash from investors during the week ended Wednesday, the third largest on record, according to Refinitiv Lipper US Fund Flows data. Puerto Rico has yet to determine the exact size of the refunding deal and when the bonds may price, Ivan Caraballo, a spokesperson for the commonwealth’s Fiscal Agency and Financial Advisory Authority, said in an email. Prasa, as the utility is known, did a similar refinancing in December and the bonds have since rallied. Debt maturing in 2047 last traded on March 24 with an average yield of 3.03%, 130 basis points more than top-rated bonds, according to data compiled by Bloomberg. That yield spread is down from 276 basis points when the securities were first sold.
