[T]he Treasury Put is an “implicit guarantee by the federal government to provide support in the event of financial distress by the issuer of Puerto Rican bonds as perceived by investors.”

For years, Puerto Rico’s economic and fiscal picture was deteriorating. Between 2005 and 2013, real GDP declined by 15 percent, while between 2000 and 2015 Puerto Rico’s government liabilities to GDP grew from 70 percent to 109 percent. Nevertheless, investors continued to purchase millions of dollars of Puerto Rico’s bonds with only a modest risk premium. In a paper to be presented at the 2018 Municipal Finance Conference , “ What Went Wrong? The Puerto Rican Debt Crisis and the ‘Treasury Put,’ ” three economists from the University of Illinois at Chicago ask why investors were so willing to continue to lend to Puerto Rico. Their answer: investors assumed the federal government would ultimately bail out Puerto Rico.