Hedge fund manager Kyle Bass, appeared on CNBC this morning to give his opinion on the embattled Puerto Rico bond market. Bass, of Hedge fund Hayman Capital Management, told CNBC that the commonwealth is mired by population decline and huge pension liabilities and yet still remains a destination for billions of dollars of U.S. taxpayer and investor cash each year.
“You look at their finances and you say ‘I have no clue how this can exist for very much longer,” Bass said.
Moody’s downgraded Puerto Rico debt just under a year ago to a level just above junk status, since then Puerto Rico’s borrowing rates have nearly doubled. But Moody’s recently reaffirmed those ratings rather than cutting them further. “Clearly they are completely junk,” Bass said.
Bass, never one to hold back, then compared Puerto Rico to Greece, saying any municipality or sovereign entity is “typically asset-heavy, but how many times have you seen a sovereign entity cede their sovereignty, sell an asset to pay an external creditor? Doesn’t happen.”
Bass is not strictly correct on this last point, Puerto Rico has been selling off everything but the kitchen sink in an effort to pay off its debts. The trouble is, they have little else to sell.
Bloomberg: – Puerto Rico yields above Venezuela’s in worst rout. – Puerto Rico’s borrowing costs are at a record high as the self-governing commonwealth’s revenue trails forecasts, calling into question the island’s ability to tackle a debt load greater than that of all but two U.S. states.
Bloomberg: – U.S. Treasury said to have no Puerto Rico assistance plan. – The U.S. Treasury Department isn’t planning to provide assistance to Puerto Rico and continues to monitor the situation after the commonwealth’s bond yields rose to records, according to a Treasury spokeswoman who spoke on condition of anonymity.
Bloomberg: – St. Louis municipal-bond underwriter agreed to pay-to-play fine. – L.J. Hart & Co., a St. Louis-based municipal-bond underwriter, agreed to pay a $200,000 fine to settle charges that it violated pay-to-play rules by giving tickets to sporting events to win work from schools and counties.
Learn Bonds: – Debt ceiling prepping – It’s time to consider doing these 2 things. – My base case for the debt ceiling drama is still that a debt default will be avoided. This includes defaulting on either interest payments or principal payments (the bigger risk is principal payments). With that said, however, the inability of those in power to thus far completely put to rest the risk of a debt default will force some investors to take certain actions to protect their assets.
Wonkblog: – What’s happening in the Treasury bill market today should terrify you. – A lot of the market indicators of how much the financial world is worrying about a debt default have been quite calm over the last week. The Standard & Poor’s 500 index, for example, is only about 1 percent below its close eight days ago, when the government shutdown began. But in the less widely followed — but in many ways more important — market for Treasury bills, things are starting to get scary.
FT: – IMF says start of Fed tapering threatens $2.3tn bond losses. – Monetary tightening in the US threatens to expose financial excesses and vulnerabilities that could wipe trillions of dollars off bond markets, the International Monetary Fund warned on Wednesday in its latest assessment of global financial stability.
MarketWatch: 5 countries with bonds safer than Treasurys. – For over a hundred years Wall Street has marketed one assurance to its customers above all others. The line: That U.S. Treasury bonds, the IOUs issued by Uncle Sam to pay for national debts, are utterly without risk of default. Today there is a non-trivial risk that the U.S. government, will default on its debt payments later this month. The good news is that there are several countries whose bonds must be considered safer than Treasuries. These are countries with, above all, incredibly sound public finances, where public debt is low in relation to the size of the economy.
Bloomberg: – Treasury bill rates surge to highest since 2008 at 1-month sale. – Treasury one-month bill rates surged to the highest since 2008 and yields on three-year notes rose as the U.S. sold $30 billion of the debt in the first auction of coupon securities since the start of the government shutdown.
Reuters: – Holders of U.S. government debt draw up contingency plans for default. – No one expects it to happen, but everyone’s making sure they’re prepared for it. Banks, funds and asset management firms holding U.S. government bonds are drawing up contingency plans on how to deal with potentially the most cataclysmic financial and economic event of all – a default by the United States.
Reuters: – Forward Calendar – U.S. corporate bond new issues. – A list of upcoming high-grade and high-yield corporate bond offerings in the United States. The information was gathered from Thomson Reuters U.S. new issues team, and other market sources.
Financial News: – Junk bonds push the needle for buyout firms. – The junk bond market was once used by private equity to add a little bit more leverage to transactions. But, nowadays, about half of all debt financings for buyouts come from high yield. Issuance is at a record high.
InvestorPlace: – Trade of the Day: iShares High-Yield Bond ETF. – There is an emerging bearish opportunity in the iShares High Yield Bond ETF (HYG) that we really like and it is worth the explanation. Interest rates are coiling for a breakout, and it doesn’t really matter which way they move. If rates change quickly in the short term, high-yield bonds are going to take a big hit. With uncertainty building in Washington, this seems like a fairly safe bet.
MarketRealsit: – Shutdown dented high yield bond market, but rally may resume soon. – Last week’s volume was pretty much null given the government shutdown, but there may be hope. The recent drop in the high yield market (HYG) is driven by two factors that in turn drive each other.
IFR: – Yellen nomination lifts emerging market debt. – Emerging credit markets have perked up on news that US President Barack Obama will nominate Janet Yellen to head the US Federal Reserve after Ben Bernanke’s term completes this year.
Randy Durig: – Achieving higher yields than EM bond ETFs with short maturity Yankee bonds. – At the completion of the third Quarter of 2013, we thought it would interest fixed income investors to compare the US dollar Yankee bonds that were acquired in our FX1 portfolio over the last 4 months with the iShares JPMorgan USD Emerging Markets Bond ETF and the iShares Emerging Markets Corporate Bond.
Artemis: – Decline in ILS and cat bond rates accelerated in Q3. – The speed of decline in insurance-linked security and catastrophe bond rates accelerated during the third quarter of 2013, according to the latest market report from ILS consultancy Lane Financial LLC. ILS rates, as measure by Lane Financial, dropped approximately 16% during Q3 2013.
The Capital Spectator: – The wide, wide world of bond ETFs. – Bonds are in the news these days, and not necessarily for bullish reasons. Between the threat of rising interest rates and the possibility of a Treasury default in the US, the notion of fixed-income as a safe haven is under pressure. But while it’s tempting to lump all bonds into one category, the reality (as usual in the capital markets) is far more nuanced. Indeed, if someone gives you their view on the “bond market,” your first question should be: Which one?
David Fabien: – Four must watch trends in fixed-income ETFs. – David Fabien, Managing Partner at FMD Capital Management, says by analyzing areas of strength and weakness, we can determine what segments offer the best value given the amount of interest rate, credit, and other risks.
The Telegraph: – Bond investors face ‘untold damage’ when interest rates rise. – Rising interest rates could inflict “untold damage” on bond portfolios, a senior investment analyst has warned.
Gross:Now that shes made history how wil she shape history? More dovish than Bernanke but runnin outta ammo. Depends on fwd guidance.#Yellen
— PIMCO (@PIMCO) October 9, 2013
— TF Market Advisors (@TFMkts) October 9, 2013
(1/2) Bonds showing growing unease with debt ceiling showdown. 4-wk t-bill yield now higher than 2011 level.
— AnthonyValeri (@Anthony_Valeri) October 9, 2013