By Matt Wirz

A settlement between creditors in Puerto Rico's bankruptcy case is lifting prices of the commonwealth's municipal bonds and shares of insurance companies that guaranteed payments on the bonds.

Traders drove up prices of the island's benchmark $3.5 billion general obligation bond due 2035 by 3.3% to around 78 cents on the dollar after the Tuesday deal removed one of the last logjams in Puerto Rico's nearly four-year journey through bankruptcy court. Roughly $275 million face amount of the bond changed hands Tuesday and about $30 million traded early Wednesday morning, making it one of the most actively traded securities in the municipal bond market, according to data from Electronic Municipal Market Access.

Shares of the insurers that guaranteed payments on billions of dollars of Puerto Rico's defaulted bonds also rose as the settlement removed some uncertainty about the amount of claims they would need to pay. MBIA Inc.'s stock has jumped around 15% this week, while Ambac Financial Group's shares have gained about 7.2%.

The disparate hedge funds and mutual funds that own Puerto Rico's debts have agreed to several previous restructurings of the payments they are owed only to be forced to recut those deals as natural disasters and the Covid-19 pandemic hammered the island's economy. Holders of about $11.7 billion support the new proposal in a major step to resolving the $35 billion of claims against Puerto Rico, according to an announcement by the oversight board managing the island's financial overhaul.

The most recent iteration stands out because for the first time it includes "conditional support" from insurers who guaranteed bond payments, analysts at CreditSights said in a report. "Their support together with the supporting uninsured creditors means there may be enough support for the [plan] to exceed the requisite acceptance thresholds," they said.

In the U.S. Treasury market, rising inflation expectations pushed yields to recent highs. Vaccines, the $1.9 trillion stimulus package under consideration in Congress and the possibility of a higher minimum wage is lifting economic forecasts.

As U.S. economists boosted projections for the size of the ultimate stimulus plan, "their inflation numbers pushed a bit higher too with risks on the upside," Deutsche Bank Research Strategist Jim Reid said in a report Wednesday.

The 30-year bond yield rose to 2.28% on Wednesday, a level not seen since January 2020, before the pandemic triggered a steep decline in government-debt yields, according to data from Tradeweb. The yield of the 10-year note hit 1.429% Wednesday, still well below its pre-pandemic level of roughly 1.8%.

Write to Matt Wirz at matthieu.wirz@wsj.com

(END) Dow Jones Newswires

02-24-21 1027ET