Biggest Muni Junk-Bond Fund Plows In as Puerto Rico Debt Rallies
Biggest Muni Junk-Bond Fund Plows In as Puerto Rico Debt Rallies
(Bloomberg) -- The biggest buyer of muni junk bonds is big on Puerto Rico.
Nuveen’s $19.5 billion High Yield Municipal Bond Fund, the largest focused on riskier state and local government securities, boosted its stake in debt sold by the bankrupt U.S. territory to $824 million as of April 30, up from $456 million at the end of March and zero in July, according to data compiled by Bloomberg. The company’s Short Duration High Yield Municipal Bond Fund also increased its holdings.
The Chicago-based behemoth is joining other mutual-fund companies, including Pacific Investment Management Co. and AllianceBernstein Holding LP, that have shifted money to Puerto Rico bonds as the island rebounded from the toll of the hurricane that ravaged it in 2017 and made strides toward emerging from a record-setting bankruptcy.
If Nuveen maintains those investments, it would signal confidence that the island’s economy will arrest the long-running contraction that pushed the government into a fiscal collapse. An influx of federal disaster aid is expected to help foster that turnaround, with growth of 4% projected for the year ending in June. And the latest financial blueprint approved by Puerto Rico’s federal overseers projects a $19.7 billion budget surplus over 30 years, up from a $12.8 billion projection in October, anticipating that some of the aid will arrive well after the storm.
The Nuveen high-yield municipal fund’s holdings include $365 million of debt sold by the island’s Aqueduct and Sewer Authority, one of the few Puerto Rico entities that continues to pay bondholders on time and in full, and $228 million issued by the Electric Power Authority, which has reached a tentative deal with some creditors to restructure its debt. It also includes $45 million of Puerto Rico’s sales-tax-backed bonds, which have risen steadily in heavy trading since they were issued in a debt-restructuring agreement in February.
Nuveen’s $5.7 billion Short Duration fund held $316 million of Puerto Rico debt as of April 30, up from $59 million in January and zero in July 2018, according to data compiled by Bloomberg.
A spokeswoman for Nuveen didn’t have an immediate comment.
Nuveen’s increase comes as the federal board that oversees Puerto Rico’s finances and its bankruptcy plans to file a plan with the court as early as the second half of June that would address how much to cut the island’s debt backed by general government revenues and its obligations to its pensioners. Those are the largest portions of its remaining debt that need to be adjusted in court.
That momentum has helped boost prices on some Puerto Rico securities. The island’s debt has gained 9.1% this year, beating the 5.3% advance for high-yield municipal securities, according to Bloomberg Barclays Indexes.
To contact the reporter on this story: Michelle Kaske in New York at mkaske@bloomberg.net
To contact the editors responsible for this story: James Crombie at jcrombie8@bloomberg.net, William Selway, Michael B. Marois
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