Puerto Rico Could Be A Big Winner From Congressional Appropriations Battle

Congress has until midnight on Friday night to avoid a partial government shutdown by passing a spending bill to fund government operations.

While most investors are hoping to avoid the headache of a shutdown, at least one class of investors may be hoping negotiations continue to be hard-fought.

According to Height Securities' Stefanie Miller, Congressional Democrats will likely be pushing to help out Puerto Rico and its bond investors. On Wednesday, President Donald Trump seemed to confirm this belief on Twitter.

“We think it’s likely that as a part of the current FY 2017 government funding fight, Democrats can be successful in appropriating a new round of short-term financing to help Puerto Rico backstop its cash-strapped Medicaid program,” Miller explained.

Related Link: Puerto Rico Announces Restructuring Agreement With Some Bondholders, But Broader Fiscal Crisis Remains

While Height says both Republicans and Democrats agree that it's in the best interest of the U.S. to avoid the worst-case scenario in Puerto Rico, there are differing opinions about the role the U.S. should play.

Miller believes Congress will opt for a “kick the can” approach in 2017 that involves another short-term cash infusion into Puerto Rico’s Medicaid program.

“Beginning in 2018, we think the time could be ripe for Republicans and Democrats to come together on a deal that see federal funding for Puerto Rico’s Medicaid program calculated more equitably relative to other states, although full parity is unlikely,” Miller concluded.

If Congress agrees to provide short-term aid, investors in the SPDR Series Trust HYMB, which has significant exposure to Puerto Rican municipal bonds, could get a nice bump.