As expected, PR GOs are staging a significant relief rally in the wake of the 2/18 investor webcast. According to Municipal Market Data, PR GO spreads vs AAA in 5 and 10 years have tightened by 115 BP in the last week alone (through 2/21).The 30 year range has also rallied, but more modestly, with spreads tightening by only 25 BP. As a result, although the PR yield curve remains sharply inverted, both the 5 yr and 10 yr paper have outperformed 30 yr paper by about 90 BP.
The reduced curve inversion may be an indication that investor concerns about PR’s “market access” are receding, at least for the time being. Crossover buyers who are more accustomed to shorter corporate bond maturities may also have been more active in the intermediate portion of the curve.
YTD through 2/21, the S&P Municipal Bond Puerto Rico Index is up 5.51%, compared to +2.58% for the S&P National AMT-Free Municipal Bond Index, with the bulk of the performance occurring in February. Even after this recent rally, the PR Index is still down 18.2% over the last 12 months, compared to a loss of only 1.5% for the Ntl AMT-Free Index.