Explaining Puerto Rico’s Falling Bond Yields

Puerto Rico is either close to default or pulling through with enough liquidity to benefit from the US recovery (no one would argue the island is doing great), but Moody's Corporation (NYSE:MCO) has threatened a downgrade and everyone knows the risk in Puerto Rican muni bonds is high, so it’s strange that the yield has fallen since the beginning of the year.

Puerto Rico's yields drop during broader muni rally

This comes in the context of a broader muni bond rally, with concerns about Fed policy driving a flight to quality, concerns about a tactical correction in equities, and the normal January effect (buying bonds again after tax selling in December) have all helped the bond market, but considering the...