Amid Dip Hedge Funds Buy Puerto Rican Munis

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This post first appeared on FloatingPath

Prices of Puerto Rican bonds have fallen nearly 17 percent this year, which is apparently enough to pique the interest of hedge funds.

Amid Dip Hedge Funds Buy Puerto Rican Munis

Thanks to an economic malaise, borrowing costs have soared for the commonwealth, which recently kicked up rumors of a possible D.C. intervention. The local government has done its best to calm rumors and tighten budgets. Since a recent public plea to markets by officials, commonwealth bonds have seen a rally, logging their largest one-day gain since 2008 shortly after the webcast.

Funds ranging in size from $60 million to $10 billion have been buying up chunks of the Puerto Rico bond market which totals in size of about $70 billion. The bonds, it should be noted, enjoy a “triple-tax-free” status exempt from federal, state, and local taxes. Trading volumes have increased largely of late from $3-5 billion monthly to over $20 billion as the hedge funds seemingly see value, albeit short-term.

Hedge-fund buying is “a good thing,” said Daniel Solender, who manages $16.5 billion as director of munis at Lord Abbett & Co. in Jersey City, New Jersey. “It would mean that they see value, that they see something positive out of it.”

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Floating Path explores economic and cultural phenomena. Floatingpath hopes to educate, inspire and provoke.

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