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Invest in Puerto Rico?

Monday, 12 Mar 2012 | 6:20 PM ET
Fast Money Portfolio
Fast Money Portfolio

Given the commonwealth's economic troubles, does it make sense to buy Puerto Rico’s bonds?

According to CNBC Contributor Alexandra Lebenthal, president and CEO of Lebenthal and Company, quite possibly.

One attractive aspect of these bonds are yield.

“Yields have always been higher on Puerto Rico’s bonds because it’s not (as low risk as) New York state or Illinois,” she says. “Unemployment is certainly higher in Puerto Rico than it is the 50 states.”

Fast Money Portfolio: Puerto Rican Bonds
A look at why investors are attracted to yields on Puerto Rico debt, with Alexandra Lebenthal, Lebenthal & co.

However, she doesn’t consider these bonds particularly high risk either. It's still a US territory. “It’s not like investing in a third world country,” Lebenthal says.

And Puerto Rico’s bonds are more widely held than you think.

“Puerto Rico’s bonds have been a staple of the municipal bond market for a number of years," says Lebenthal.

"The main reason being that they are exempt in every state. If you live in a state that has no state tax like Florida, or if you live in a state where you can’t find enough Municipal Bond paper, Puerto Rico is always been a nice fill in – for your portfolio.”

As attractive as all this sounds, there’s a very important caveat. It’s very important to know exactly how your money is being used. Is it going toward the general obligation of the common wealth? Or is it being used by the power authority or for roads and tunnels?

If you’re a retail investor and find that kind of research somewhat complex, “invest through a fund where you have professional management,” says Lebenthal.






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Trader disclosure: On March 12, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders: Terranova is long VRTS; Terranova is long NXPI; Terranova is long IBM; Terranova is long MCD; Terranova is long EMC; Terranova is long MSFT; Terranova is long GS; Terranova is long JOY; Terranova is long OXY; Terranova is long LQD; Terranova is short GOOG; Terranova is short April Gold futures; Terranova is short May Silver futures; Adami is long C; Adami is long GS; Adami is long INTC; Adami is long AGU; Adami is long NUE; Adami is long BTU; Najarian is long AAPL call spreads; Najarian is long GS call spreads; Najarian is long IBM call spreads; Najarian is long WNR call spreads; Najarian is long RIG call spreads; Najarian is long WDC call spreads; Najarian is long CCL call spreads; Najarian is long HTZ call spreads; Nations is long C; Nations is long BAC

For Paul Sankey
(XOM): Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received non-investment banking securities-related services.

(CVX): Is an Investment Banking client of DBSI. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received non-investment banking securities-related services.

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For Alexandra Lebenthal
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