President Donald Trump suggested last week that Puerto Rico’s $74 billion in debt would be wiped out. In response, Puerto Rico’s bonds, which had been surprisingly resilient up until Maria hit, plummeted.
Even some insured municipal bonds fell, after initially trading above par post-Maria. Yields, which move inversely to prices, rose from about 4.1% to 4.75%, and then fell back to 4.3%. “That’s a lot of gyrations off of one statement that didn’t mean anything,” says John Mousseau, director of fixed income at Cumberland Advisors. His firm owns insured Puerto Rico debt and bought more during the panic.
What’s next? Puerto Rico needs emergency aid—whether in the form of grants or very low-cost loans—and Congress has no choice but to step up. After that, a comprehensive plan to rebuild and modernize its infrastructure is needed. That could halt the dire problem of outmigration by creating new jobs and boost the economy by allowing tourism to flourish, says Mousseau.
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