Puerto Rico Defaulted 8% Bond Slumps To $24, Yield Rises To 32.878% (Population and Home Prices Continue To Decline)

Puerto Rico has had its share of tragedies. First, they are fiscally incompetent (regularly spending more than they take in).  Second, they were devastated by Hurricane Maria leaving much of the island in shambles.

Peurto Rico has defaulted on its 8% general obligation (GO) bond maturing in 2035.


The Commonwealth’s 8% GO bond has fallen to $24 and a yield of 32.878%. The good news? The bond’s modified duration has shortened to 3.287.


Recent trades show a pattern of deterioration in the price.


Hordes of people have been leaving the island and home prices have been declining since 2007,


How can things get worse for the people of Puerto Rico?



New Home Sales Rise 18.9% In September, Largest Increase Since 1992 (25 Years)

New home sales surged 18.9% in September, the largest monthly gain since 1992.


New home sales rose sharply in the northeast and the south.


Homebuilders are doing quite well compared to the S&P 500 index.


The two natural disasters (Harvey and Irma) certainly destroyed a substantial amount of the housing stock and caused population displacement.

Puerto Rican 5.75% Bonds Collapse To $33.45 (Darkness On The Edge Of The USA)

Puerto Rico is an example of Darkness on the Edge of Town (or the USA).  Electricity on the island is coming back, but much of it was knocked out by the hurricane.


Puerto Rico’s Commonwealth bonds have fallen in price … again. Consider the 5.75% coupon bond. The already defaulted bond has been trading at under $60, but has now fallen to $33.45 on the deadly hurricane strike.


Puerto Rico’s benchmark bond fell, allegedly, because Trump’s budget chief said no bailout for Puerto Rican debt (that is, BONDHOLDERS will not be bailed out). But the compressed chart used by Bloomberg masks the bond price decline that started months before the hurricane and any announcement by Mick Mulvaney, director of the White House budget office.


While the media and political hacks scream “Trump’s fault!” (Much like “Jerry’s fault!” on Parks and Recreation), Puerto Rico’s $34 bond has been a long time in the making. Corruption, overspending and a declining population led to Puerto Rico’s bond default in May of $70 billion of obligations, long before the hurricane struck.


Puerto Rico is truly “Darkness on the Edge of … the USA.”


Wind Catastrophe Bond Price Sinks To 70 On Hurricane Irma (Frozen OJ Price Rises)

The Swiss Re US Wind Cat Bond Performance Index Price Return Index has sunk to 70 on Hurricane Irma’s projected path through Florida.


The Swiss Re Global Cat Bond Performance Index Price Return is at 80.

(Bloomberg) — Hurricane Irma probably will ravage Florida’s orange groves and sugar-cane crops once the powerful storm strikes the state this weekend. But the damage may not end there for the agriculture industry in the Southeast. Heavy rain and wind is projected to keep moving north into Georgia and reach parts of Tennessee, Alabama and the Carolinas, putting some of the top U.S. producers of chicken, cotton and hogs at risk.

“You’ve got your citrus and vegetable issue in Florida right away, and then as it moves on up into north Florida and Georgia, that’s right in the heart of peanut and cotton country, and soybean and corn country in southwest Georgia, primarily,” Agriculture Secretary Sonny Perdue, a Georgia native and former state governor, told reporters in Washington Friday.

Frozen orange juice concentrate rose on Irma news of a Florida strike.

Here is the volatility surface for FOJC futures.


Atlanta Fed Increases Q3 Real GDP Forecast To 3.0% As Catastrophe Bonds Plunge (Fed Not Likely To Raise Rates Again Until September 2017 Meeting)

The Atlanta Fed’s GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2017 is 3.0 percent on September 8, up from 2.9 percent on September 6. The forecast of the contribution of inventory investment to third-quarter real GDP growth increased from 0.87 percentage points to 0.94 percentage points after this morning’s wholesale trade report from the U.S. Census Bureau.


Of course, these GDP numbers do not yet include the horrific damages caused by Harvey or Irma (while Jose is pushing out into the Atlantic Ocean). The damage to housing, commercial real estate and automobiles from Harvey and Irma will be quite extensive.


Catastrophe (Cat) bonds took a big plunge on Irma.


The extensive hurricane damage is likely to reduce the chance of a Fed rate hike. As of today, the implied probability of a Fed rate hike does not exceed 50% until the September 26, 2018 meeting. And then it is only 55.3%.


The most likely path of Fed rate hikes is beginning to look like the train from the movie “Snowpiercer.”


Be safe Texans and Floridians.