“A key part of our decision to not invest in Puerto Rico up until now is the lack of a clear set of rules to provide Puerto Rico debt relief, which we think is inevitable,” Hammer said. “We want to know what the rules are before we’re willing to commit investor capital.”

The call paid off: Junk-rated Puerto Rico bonds have plunged 13 percent this year, the third worst of all market segments tracked by Barclays Plc.

“I’d expect us to remain very cautious on Puerto Rico until we have a set of investable rules,” Hammer said. “There will be a lot of noise without a lot of clarity, and that’s not good for bond prices.”

Chicago As Junk

Some investors extended their caution to Chicago, the only big city besides Detroit that Moody’s deems junk. Some of its securities fell by more than 10 cents on the dollar in less than a week after the May downgrade, on speculation that Chicago would face a liquidity crisis because the rating cut exposed it to as much as $2.2 billion of payments to banks if it couldn’t refinance its debt.

Pimco saw it as a buying opportunity. The high-yield fund took a $9 million position in general obligations due in 2033 that the city issued in July, making it the fund’s sixth-largest single holding by Sept. 30, Bloomberg data show. The debt priced at 98.5 cents on the dollar to yield 5.64 percent. It last traded in October at 103.6 cents to yield 5 percent.

Chicago avoided a cash squeeze by refinancing. The securities went on to rally after Mayor Rahm Emanuel in October pushed through the biggest property-tax increase in the city’s history -- $543 million over the next four years -- to help pay the pension-fund bills at the root of the its distress. Emanuel, a Democrat who won re-election in 2015, had resisted raising the levy for years even though it was lower than surrounding localities.

“Our view was that we would get a property-tax increase out of Chicago, that it would go a long way in beginning to address their fiscal imbalances when it comes to underfunded pension liabilities, and that the market would reward Chicago for demonstrating that they have not just the ability but the willingness to raise revenues,” Hammer said.

While the city has challenges ahead, the property-tax increase “does fundamentally improve their credit outlook,” Hammer said.