US Muni Funds Jolted By Puerto Rico's Debt Crisis

US Muni Funds Jolted By Puerto Rico’s Debt Crisis by Alec Mendes, FactSet

Puerto Rico’s ballooning debt crisis has brought much attention to the small island territory, where over 25% of working citizens are employed by the government. With yields soaring, municipal investors are scrambling to determine how today’s and potential future defaults will impact portfolios, knowing that about half of US muni funds are exposed to Puerto Rican debt (according to Morningstar). Most of this debt was purchased with investment-grade ratings by portfolio managers lured in by extremely accommodating tax laws. Puerto Rican government debt is generally tax-free in any US state, which led state-specific municipal funds to load up on island debt over the past three...