MuniNet Guide Archive

Having outperformed Treasuries over the last two weeks, the municipal bond market is in a state of limbo currently, as cross-market valuations are no longer compelling. A modest backup in yields may actually be a welcome development at this point.

In the broadest sense, cities that provide the landscape for a television series – or a movie – benefit in both tangible and intangible ways. The increased publicity for and awareness of a city – particularly if portrayed in a positive light – often lead to concrete benefits such as increased tourism, greater economic development opportunities, and perhaps even an influx of residents. Other tangible economic rewards come as a result of on-location filming and production.

The municipal yield curve flattened dramatically in sympathy with the recent movement in the Treasury curve. This quasi-instantaneous response move was rather surprising for the normally slow-moving tax-exempt market; could a new age of muni volatility be upon us? Plus … When it comes to Puerto Rico, there is never any dearth of controversy, it seems.

As we like to say in the investment business, there often comes a point where fear in the marketplace turns into greed. The Commonwealth of Puerto Rico found that inflection point this week with its epic high yield G.O. issue … At the risk of stating the obvious, once the imminent threat of restructuring receded, the 8.00%+ yield proved too irresistible, even to those who couldn’t take advantage of the triple tax exemption.

The supply outlook in the tax-exempt sector brightened considerably this week as the new issue calendar returned to a more normal level of about $5 billion. Next week, the muni market’s attention will be fixated on the new Puerto Rico GO issue, slated to price on Tuesday, March 11.

As expected, PR G.O.s are staging a significant relief rally in the wake of the recent investor webcast. And, as you may have heard, Detroit’s Emergency Manager Kevyn Orr and his team filed the City’s Plan of Debt Adjustment last week. To the dismay of the muni bond community, the proposed treatment of G.O. ULT bondholders deemed “unsecured” did not change materially from the initial proposal.

The Puerto Rico Government Development Bank (GDB) hosted another investor webcast on Tuesday. This article includes a discussion of the primary take-aways from the call, including the Commonwealth’s announcements that it will come to market in March with approximately $2.8 billion of tax-exempt general obligation (GO) bonds – its first public sale since the PREPA deal in August of 2012.

Given all the turmoil overseas, is it any wonder investors are rediscovering municipals for their attractive risk-adjusted return characteristics? …The muni market’s improved technicals have helped Puerto Rico paper weather the latest fear-mongering efforts by the nation’s media … And, how might the latest developments in the Detroit bankruptcy case impact bondholders?