Yes, Puerto Rico is a significantly large issuer of triple tax-exempt debt and it has found its way into a good number of actively as well as passively managed municipal bond funds all across the country. And as redemptions from bond funds and other accounts have fueled selling pressures, the liquidity ascribed to Puerto Rico debt makes it an easy name for portfolio managers to put on their sell lists. The result has been a dramatic rise in yields for all these bonds and underperformance (-19.76% YTD as of September 9, 2013 based on the Barclays Puerto Rico Municipal Bond Index1.
I am not yet convinced that it is a foregone conclusion that Puerto Rico will go down the same path as that of Detroit.
James Colby is a portfolio manager and senior municipal strategist at Market Vectors ETFs.
1The Barclays Puerto Rico Municipal Bond Index is considered representative of the broad market for investment-grade, tax-exempt bonds issued in Puerto Rico, with a maturity of at least one year.