Moody’s Analytics, a group separate from Moody’s Ratings team, published a recent report (dated 2/3/14) on PR’s CDS-derived probabilities of default::

“Market-based probabilities of default for Puerto Rico have continued to deteriorate since the beginning of the year. The commonwealth’s five-year cumulative CDS- implied EDFTM (Expected Default Frequency) credit measure, for example, rose from 15.86% on December 31 to 20.81% this past week (Figure 1).1 Puerto Rico’s one-year EDF measure is currently 4.63%, exceeding that of all US states and sovereign entities in our data set except Argentina and Venezuela (…)

In addition, the difference between Puerto Rico’s one-year and five-year annualized CDS- implied EDF measures has inverted in recent days. 

An inverted yield curve may indicate that investors are concerned about an issuer’s near-term refinancing risk. In that case, an issuer’s debt often begins to trade based on a dollar price that indicates an expected recovery rate, rather than on a yield spread linked to a particular maturity. When two bonds with roughly the same coupon are trading at roughly the same dollar price, the one with the shorter maturity generates a higher yield than the bond with the longer maturity.”

You can download the full report, written by Jerry Tempelman and Xian Li, at

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About Triet M. Nguyen

Triet Nguyen is a veteran of the fixed-income markets and a high yield/distressed municipal bond expert. Over his 32 year career, Triet has designed, marketed and managed every type of buy side investment products, from mutual funds (open and closed-end) to managed accounts and hedge funds. He is currently the managing partner of Axios Advisors LLC, an independent municipal research and investment advisory boutique specializing in high income strategies. Triet is the author of “Investing In The High Yield Municipal Market”, to be published in July 2012 by John Wiley/Bloomberg Press. He also moderates the Municipal Credit Research Forum on LinkedIn. His Twitter handle is @HighYieldPro. Before rejoining Axios (which he founded in 2002), Mr. Nguyen was a Senior Vice President at B.C. Ziegler, where he traded tax-exempt high yield and taxable municipal bonds (including Build America Bonds). From January 2004 to January 2008, he was a Managing Director of Saybrook Capital, LLC, managing one of the first ever municipal hedge funds dedicated to a credit strategy. As Director of Information Services at between 2000 and 2001, Triet contributed to the development of a pioneering online muni bond evaluation system. Prior to 2000, he was a Vice President/Portfolio Manager of the John Hancock Funds and a Senior Portfolio Manager of the Putnam Funds. Triet received a B.A. in Economics and an M.B.A. in Finance and Accounting from the University of Chicago.