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Markets | Investors Keep High-Yielding Puerto Rico Bonds
Greetings. I'm Jessica Menton, walking you through today's premarket action.
Stock futures are mildly lower as investors weighed the Fed's signal of
no more interest-rate increases this year and a lower forecast for U.S.
growth. Meanwhile, Dow component Nike is set to post earnings after the
Plus, some investors are holding on to Puerto Rico bonds. Markets reporter Gunjan Banerji and bankruptcy reporter Andrew Scurria weigh in on what could help further expand the buyer base.
Markets in a Minute
Global stocks were mixed as markets continued to parse the Fed's latest rate decision and waited for more news on U.S.-China trade negotiations.
Investors are hanging on to bonds issued as part of Puerto Rico’s
massive restructuring effort, a sign of confidence in the fiscally
troubled island’s prospects.
Prices have edged higher for $12 billion in new debt backed by sales
taxes that Puerto Rico issued several weeks ago. The bonds, known by
their Spanish acronym as Cofinas, were issued to investors including
hedge funds as part of the U.S. territory’s financial restructuring,
marking the first settlement in ongoing negotiations to fix its broken
Although the bonds’ prices have pared some of
their earlier gains, one slice of newly-issued sales tax bonds recently
traded with an average price of about $94.62, up from $93.00 last month, according to Refinitiv's Municipal Market Data.
The climb defied expectations that investors would immediately dump the
debt, dragging down prices. Some analysts attributed the gain to
increased faith that the financial restructuring would help Puerto Rico rebound from
years of economic stagnation, helping convince mutual funds, ordinary
investors and other traditional municipal bondholders that fled the
island’s debt years ago to buy the bonds from hedge funds.
In one boost to Puerto Rico’s new bonds, they recently re-entered the
Bloomberg Barclays Municipal Bond High Yield Index, where they now make
up 12% of the gauge, according to a Bloomberg spokeswoman. The
reappearance could propel further gains, analysts said, since some fund
managers will need to buy the bonds to continue tracking the benchmark.
Demand for municipal debt has been robust.The market got off
to the hottest start in more than a decade in 2019. In recent months,
investors have welcomed higher-yielding borrowers like the
formerly-bankrupt Detroit as well as riskier sectors in the muni market
with higher default rates.
And higher-yielding municipal debt has climbed since the beginning of
the year after a strong 2018. It has returned 2.2%, counting price
changes and interest changes, outpacing other munis and Treasurys,
Bloomberg Barclays data via FactSet show.
Cofinas maturing in more than 30 years recently traded with a 5.3%
yield, according to Refinitiv’s Municipal Market Data, more than two
percentage points above longer-dated debt rated triple-A, and higher
than the 4.85% yield recently offered on the Bloomberg Barclays
Municipal Bond High Yield Index.
Resolving issues around the sales-tax bonds was key to Puerto Rico’s
restructuring because it needed access to some of the money pledged to
them to repay other public debts. The Cofina settlement marked a
cautionary example for some municipal investors, showing how even
complex security structures may not be as safe as many believed.
The yield on the benchmark 10-year U.S. Treasury note settled at 2.537%
Wednesday, down from 2.614% Tuesday, after the Federal Reserve signaled
it was unlikely to raise interest rates at all in 2019. That marked its
lowest close since January 2018.
The KBW Nasdaq Bank Index of large commercial lenders and the SPDR
S&P Regional Banking exchange-traded fund on Wednesday dropped 3%
and 3.4%, respectively, each posting their biggest one-day percentage
loss since Dec. 4.
On this day in 1924, the Massachusetts Investors Trust, the first
open-end mutual fund—a type of fund that doesn't have restrictions on
the amount of shares the fund can issue—was founded in Boston by Edward
G. Leffler, a former aluminum cookware salesman, and investment bankers
Hatherly Foster, Jr. and Charles H. Learoyd. The minimum initial
purchase of five shares cost $262.50, or $2.50 less than the price of a
new Ford Model T runabout.
The Bank of England releases a policy statement at 8:00 a.m. ET.
U.S. jobless claims are expected to fall to 225,000 from 229,000. The figures are scheduled for 8:30 a.m.
The Philadelphia Fed's manufacturing survey for March is expected to rise to 5.0 from -4.1 a month earlier. It is also slated for 8:30 a.m.
The Conference Board's leading economic index for February, due at 10 a.m., is expected to rise 0.1%.
Natural-gas inventories will be out at 10:30 a.m.
Stockpiles are expected to have fallen 48 billion cubic feet last week,
more than average for this time of year, according to the average target
of 10 analysts and traders surveyed by the Journal.
President Trump joins CEOs from America's biggest companies at the Business Roundtable's quarterly meeting at 11 a.m.
While high-dollar loans have been a bright spot for banks, recent
trends have hit the market disproportionately. PHOTO: THE WASHINGTON
Jumbo mortgages are slowing down. High-end home buyers are turning cautious,
a blow to banks that refocused their mortgage businesses around wealthy
borrowers in the years after the financial crisis. Originations for
jumbo mortgages—loans too big to be sold to Fannie Mae and Freddie
Mac—dropped 12% last year by dollar volume.
Levi Strauss will go public today for the second time. The stock will begin trading on the New York Stock Exchange under the ticker LEVI. The denim company is selling shares at $17 apiece, it said Wednesday, for a valuation of roughly $6.6 billion.
The Fed left interest rates unchanged. Officials indicated Wednesday they are unlikely
to raise borrowing costs this year and may be nearly finished with the
series of increases they began more than three years ago now that U.S.
economic growth is slowing.
Trump signaled tariffs on Chinese goods will stay. With
the U.S. and China preparing for a fresh round of face-to-face
negotiations, the president said the U.S. expected to keep tariffs on
Chinese goods in place for a “substantial period of time,” even after a deal.
The U.K. requested a three-month Brexit extension. Ahead
of a summit with European Union members this week, the U.K. has asked
to delay its departure from the bloc until June 30. But EU leaders are
only likely to grant such a short extension if British Prime Minister
Theresa May can win backing next week from the U.K. Parliament for her Brexit deal.
U.S. oil prices hit a four-month high Wednesday. Crude was boosted by government data showing an unexpected decline in U.S. supplies. The oil market overall is being supported by production cuts from OPEC and its allies.
What We've Heard on the Street
“The economy will probably climb out of the funk it fell into in the
first quarter, and [the] Federal Reserve knows it. But there is a
difference between probably and certainly.”