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Puerto Rico zeros
Old 04-11-2014, 03:37 PM   #1
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Puerto Rico zeros

Anyone knowledgeable on muni's? Why not buy deep discounted dollar price PR muni's zeros. They now trade at an implied 15+% taxable yield. North of 8.5% after tax. Got to be worth a shot. I looked at one today. 125k invested gets you 750k back on 2036. Cofinas. What am I missing? I know there are risks but even if PR defaulted I would think they would get back more
Than 16 cents on the dollar? Jmo
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Old 04-11-2014, 03:51 PM   #2
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Anyone knowledgeable on muni's? Why not buy deep discounted dollar price PR muni's zeros. They now trade at an implied 15+% taxable yield. North of 8.5% after tax. Got to be worth a shot. I looked at one today. 125k invested gets you 750k back on 2036. Cofinas. What am I missing? I know there are risks but even if PR defaulted I would think they would get back more
Than 16 cents on the dollar? Jmo
Puerto Rico is up there with Detroit in the possiblity of defaulting. It has a very bad set of financials, which is why the interest rate is so high. Worst case look at what Detroit bondholders will get or what some of the Ca cities will get. (Of course its not clear if PR can file BK under the laws, states can not as the Federal BK law does not allow it, Now it is not clear if PR law allows for a resolution mechanism either.
If this is gambling money then go ahead.
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Old 04-11-2014, 06:42 PM   #3
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About 40% of my investable assets are in in individual muni bonds and I have been buying them for my personal account for 20 years. My portfolio has more than 100 individual bonds which I have researched myself. I bought California GOs when everyone said California was going bust, I bought Illinois GOs when everyone said Illinois was going bust-- and did very well.

However, PR scares me. It has more debt per person than Detroit with a declining population. As stated, it is somewhat unclear whether PR can file under Article 9 for Bankruptcy. There is an older case I think involving Guam that says it cannot -- but I am not comfortable with that. Not only that, the zeroes are the scariest of them all because they balloon in full at the end.

My contrarian core would normally say buy some but the fear side is winning that argument. I buy bonds for safety and stocks for appreciation. PR bonds do not fall into the safety category for me. Good Luck.
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Old 04-11-2014, 10:28 PM   #4
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Jeez, I would go on margin to get more yield in my stock account rather than spend $125K on PR bonds. Probably a lower risk with the margin.
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Old 04-11-2014, 10:38 PM   #5
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Here is a timely article from today about losing money in Puerto Rico bonds:

http://finance.yahoo.com/news/puerto...9--sector.html
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Old 04-11-2014, 11:07 PM   #6
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Here is a timely article from today about losing money in Puerto Rico bonds:

http://finance.yahoo.com/news/puerto...9--sector.html
From the linked article:
Boxer Felix "Tito" Trinidad, who grossed nearly $90 million during his championship career in the ring, is in economic ruin...
Nearly all of Trinidad's net worth was invested in Puerto Rico government bond funds...

I guess some people do not believe in diversification.
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Old 04-12-2014, 05:28 AM   #7
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Puerto Rico is up there with Detroit in the possiblity of defaulting. It has a very bad set of financials, which is why the interest rate is so high.
+1

These are even worse than most because they're zeros, so you don't get any interim cash back.
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Old 04-18-2014, 09:04 PM   #8
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2036 zeros from PR are junk- literally. No coupon, just a hope you get par in 20+ years? No coupon, just a an IOU until 2036? Nah.


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Old 04-18-2014, 10:50 PM   #9
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Anyone knowledgeable on muni's? Why not buy deep discounted dollar price PR muni's zeros. They now trade at an implied 15+% taxable yield. North of 8.5% after tax. Got to be worth a shot. I looked at one today. 125k invested gets you 750k back on 2036. Cofinas. What am I missing? I know there are risks but even if PR defaulted I would think they would get back more
Than 16 cents on the dollar? Jmo
What you are missing is the very real possibility of getting nothing in default.

I don't know why you assume you'd get back more than 16 cents on the dollar in the event of default. Could you provide info on why you think this?

I suppose they could become the 51st state, and the Feds would pay you off.

I'd rather take the $125k to Vegas. At least I'd get lots of comps.
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