If you don’t think you own Puerto Rico debt, you’re most likely wrong

Personal Finance


Jonathan Ernst | Reuters

President Donald Trump and first lady Melania Trump walk through a neighborhood damaged by Hurricane Maria in Guaynabo, Puerto Rico, U.S., October 3, 2017.

Following Trump’s comments, Puerto Rico’s general obligation bonds, which currently yield 8 percent, dropped to 36 cents on the dollar on Wednesday morning. Such a loss would affect people who sold the bond before maturity.

To check whether you have exposure through your mutual fund investments, Long recommends checking the fund’s holdings, which they are required to disclose. Investors can get that information by calling the fund company, checking the fund’s prospectus or looking at their filings with the Securities and Exchange Commission.

“With so many mutual funds, it’s just specific to what the investor holds,” Long said. “Not every mutual fund has some Puerto Rican debt in it.”

Mark S. Germain, founder and CEO of Beacon Wealth Management in Hackensack, New Jersey, said investors who are invested in the island’s debt could find themselves in bad situation if it were wiped out, he said.

Investors should call their broker or fund company to ask exactly what their exposure is, he said.

The president’s comments are unlikely to have a long-term effect on the existing investments, according to researchers at BTIG, a provider of trading and fund services.

“Trump’s comments may strike fear into some of these investors, particularly if they are not familiar with the facts surrounding Puerto Rico’s debt restructuring,” BTIG said. “However, in terms of influencing bondholders’ ultimate recoveries the interview did not change anything.”

Investors in Puerto Rico bonds could see a “meaningful positive” if the Trump administration grants a $29 billion request for aid to the island, according to BTIG.

Though bond prices on Puerto Rico debt were flailing on Wednesday morning, Long said it’s likely they will rebound.

“Investors need to give this a little time to shake out,” she said. “It doesn’t help to run out the door now. They just need to be patient and see what happens.”



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