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Economy
In reply to the discussion: Weekend Economists Simplify Everything! October 25-27, 2013 [View all]xchrom
(108,903 posts)18. Puerto Rico's Debt Crisis: Puerto Pobre
http://www.businessinsider.com/puerto-ricos-debt-crisis-puerto-pobre-2013-10
A heavily indebted island weighs on Americas municipal-bond market
ALTHOUGH investors are now less jittery about a possible default by the American Treasury, they are rightly still nervous about a drama unfolding in the market for state and local debt. Since May, yields on bonds issued by Puerto Rico, a self-governing American territory, have shot up to between 8% and 10%, despite their (barely) investment-grade rating and tax-exempt interest.
Puerto Rico carries outsized importance in Americas almost $4 trillion municipal-debt market, which includes bonds issued by states and other local authorities as well as by cities. The islands current debt, between $52 billion and $70 billion (depending on how it is measured), is the third-largest behind Californias and New Yorks, despite a far smaller and poorer population. In Americas 50 states the average ratio of state debt to personal income is 3.4%. Moodys, a ratings agency, puts Puerto Ricos tax-supported debt at an eye-watering 89% (see chart).
Puerto Ricos debt has long been a staple of American municipal-bond funds because of its high yields and its exemption from federal and local taxes--of particular appeal to investors in high-tax states. That let Puerto Rico keep borrowing despite its shaky economic and financial condition, until Detroits bankruptcy in July alerted investors to the threat of default by other governments in similar penury.
Read more: http://www.businessinsider.com/puerto-ricos-debt-crisis-puerto-pobre-2013-10#ixzz2ip54WZA7
A heavily indebted island weighs on Americas municipal-bond market
ALTHOUGH investors are now less jittery about a possible default by the American Treasury, they are rightly still nervous about a drama unfolding in the market for state and local debt. Since May, yields on bonds issued by Puerto Rico, a self-governing American territory, have shot up to between 8% and 10%, despite their (barely) investment-grade rating and tax-exempt interest.
Puerto Rico carries outsized importance in Americas almost $4 trillion municipal-debt market, which includes bonds issued by states and other local authorities as well as by cities. The islands current debt, between $52 billion and $70 billion (depending on how it is measured), is the third-largest behind Californias and New Yorks, despite a far smaller and poorer population. In Americas 50 states the average ratio of state debt to personal income is 3.4%. Moodys, a ratings agency, puts Puerto Ricos tax-supported debt at an eye-watering 89% (see chart).
Puerto Ricos debt has long been a staple of American municipal-bond funds because of its high yields and its exemption from federal and local taxes--of particular appeal to investors in high-tax states. That let Puerto Rico keep borrowing despite its shaky economic and financial condition, until Detroits bankruptcy in July alerted investors to the threat of default by other governments in similar penury.
Read more: http://www.businessinsider.com/puerto-ricos-debt-crisis-puerto-pobre-2013-10#ixzz2ip54WZA7
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