Investors and advisors buoyed by the rally in Puerto Rican general obligation debt shouldn’t break out the champagne just yet.

Even though the government of Puerto Rico made all scheduled principal and interest payments due on its GO debt due Jan. 1, sparking a rally in those bonds, it missed $37 million worth of payments on infrastructure and public finance bonds that same day and $58 million in payments on agency debt. It is still operating on shaky grounds.

For one thing, the government is diverting funds that would have serviced other types of debt to make payments on its GO debt, a process known as a “clawback.” Also Puerto Rico’s economy is shrinking, with an unemployment rate of 12.5% — two-and-half times the national level—and a declining population, falling about 1% a year for the past nine years. And, most important its “revenue base is eroding,” says Richard Ciccarone, president and CEO of Merritt Research Services, a municipal credit and research company. At t the same time, Puerto Rico’s bills are piling up – bills to pay pensions and benefits in addition to interest on municipal bonds.

“This is an ongoing problem,” says Ciccarone. “We still don’t know how this will end up…. Something has to give. The territory is struggling each day to meet its obligations.”

The situation is still “very speculative,” says John Mousseau, director of fixed income at Cumberland Advisors. “They’ve got a lot of work ahead.”

As it stands now, Puerto Rico has about $70 billion in outstanding municipal debt, including a little less than $13 billion in general obligation debt, which leaves a lot of debt that is not GO debt. Some of that outstanding debt is insured by companies that guarantee interest payments will be made to investors on time, but even those bonds can be “affected by headline risks,” says Mousseau.

“Why would you accept the same yield on a Puerto Rican insured bond as on Florida insured bond? Headline risk demands incremental yield.” That additional yield amounts to about 1-1.25% more than the yield on other insured bonds, says Mousseau.

He recommends that investors holding insured or GO Puerto Rican bonds – even uninsured GOs — hold onto them. Their prices may move higher, but Mousseau says he “wouldn’t touch” any uninsured Puerto Rican bonds now.

Other Puerto Rican bonds “will be discounted one way or another,” says Ciccarone. “I don’t see any big bounce back. There’s very little chance they will all be paid back.”

The situation is fluid, and many questions remain. How many more funds will the government claw back? Ambac Assurance Corp. (AMBC) and Financial Guaranty Insurance Company, which together insure more than $863 million in bonds issued by the Puerto Rico Infrastructure Financing Authority and secured by federal excise taxes on rum and other products, are protesting the use of rum tax clawbacks.

What will happen to $331 million in interest payments due in February, $432 million due in May and almost $2 billion due in July, according to numbers compiled by Bloomberg?

There’s also the upcoming Supreme Court hearing in February — to be decided in June — about whether Puerto Rico can reinstate a law that would let its public utilities restructure about $20 billion in debt. (An agreement was recently reached to restructure just over $8 billion in electric utility debt.)

Congress is also expected to weigh in. House Speaker Paul Ryan has pledged to address the Puerto Rican debt issue during the first quarter of this year. Puerto Rico wants Congress to change the law so that it can file for Chapter 9 bankruptcy as municipalities like Detroit have done in the past.

–Related on ThinkAdvisor