Nearly all of the company's $18 billion in debt was trading down, while the share price has fallen 21.7 percent. In a form filed with the U.S. Securities and Exchange Commission on Monday, PG&E announced its intention to not make the payment.

In response to a request for comment, the company cited the SEC filing, which also noted that "Under the indenture governing the 2040 Notes, PG&E has a 30-day grace period to make the interest payment before triggering an event of default."

PG&E, which owns the biggest U.S. power utility by customers, said on Monday it was preparing to file for Chapter 11 as soon as this month as it faces a potential $30 billion in liabilities linked to California's catastrophic wildfires in 2017 and 2018. Its shares and bonds have been falling since.

The 2040 bond <694308GS0=>, which is worth $800 million and sports a 5.4 percent coupon, fell by 4.75 points on Tuesday. Its yield spread, or additional compensation demanded by investors to hold a risky bond over safer U.S. Treasury securities, rose by 4.77 percentage points.

Despite losses on the 2040 bond, the largest drops in price and widening of spreads were concentrated in shorter maturities, implying that the market continues to price in some expectation of recovery.

PG&E had three of the 10 most-traded U.S. corporate bonds on Tuesday, MarketAxess data showed, of which the most actively traded was a $3 billion note coming due in March 2034 <694308GE1=>.

(Reporting by Kate Duguid; editing by Tom Brown and Richard Chang)

By Kate Duguid