(Bloomberg) -- Pacific Investment Management Co. doesn’t hold Puerto Rico debt in its tax-free funds, and the company predicts that a lack of improvement in the island’s finances may increase volatility in other municipal securities.

Puerto Rico’s economy is shrinking and the commonwealth has relied on deficit financing to balance recurring budget gaps. Its general obligations, whose yields rose to record highs last month, are rated one step above junk. The island’s debt lost value the past four months, the longest slide since 2011, Standard & Poor’s data show.

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