(Reuters) - Puerto Rico's deepening financial crisis could speed up an exodus of money from U.S. municipal bond funds that have placed big bets on the cash-strapped Caribbean island.
Investors, for example, pulled $634 million from muni bond funds run by OppenheimerFunds during the first five months of 2015, according to Lipper Inc, a unit of Thomson Reuters. And that was before Puerto Rico Governor Alejandro Garcia Padilla admitted Monday that the country's budget gap was bigger than thought and it could not repay more than $70 billion in debt.Over the past year, funds run by Goldman Sachs Group Inc have increased their exposure to Puerto Rico to attract yield-hungry investors, U.S. regulatory filings show. Before this week's bad news, veteran Eaton Vance bond fund manager Tom Metzold said Puerto Rico's problems could trigger a domino effect, partly from portfolio managers selling assets to meet investor redemption demands. "I'm worried about that contagion effect," said Metzold, who's leaving his post July 31 to join muni bond insurer National Public Finance Guarantee Corp., a unit of MBIA Inc. U.S. municipal bond funds are the largest owners of Puerto Rico debt, in a strategy that seeks high yield amid rock-bottom interest rates. The bonds are typically exempt from local, state and federal income taxes, widening their appeal to single-state funds that use Puerto Rico debt to diversify their portfolios while boosting income for investors. To be sure, investing in Puerto Rico could be a winning strategy for those able to stomach the many recent episodes of tumult.The $6 billion Oppenheimer Rochester Fund Municipals