The Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the S&P AMT-Free Municipal Series 2016 Index. The Fund will mature on a pre-specified date, however the Fund does not seek to return any predetermined amount at maturity. The Fund will invest in AMT-Free, investment grade, noncallable national municipal bond debt.
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A two-week streak of outflows is broken as investors put a net $273M into municipal bond funds and ETFs last week, according to Lipper data. The funds have seen inflows for 7 of the past 9 weeks, but they've been small and choppy, averaging just $21.9M over the last month.
RBC's Chris Mauro notes the typical late March/early April seasonal tax-time weakness is passing, and this week's inflows - like previous - have been nearly entirely concentrated in high-yield muni funds, with recorded their 14th consecutive week of net gains in assets.
Citing a "sizable structural imbalance" within the budget, S&P cuts the rating on New Jersey's general obligation debt to A+ from AA-. Acknowledging an improving economy in the state, S&P says it won't be enough to offset potential unfunded liabilities.
"By using bullish assumptions about revenue growth and one-time measures to close budget gaps, the state defers making long-term structural changes to better align revenues and expenditures, defers budgetary pressures to future years' budgets and increases its exposure to an eventual economic downturn."
The agreement with Assured Guaranty (AGO +2.2%), Ambac (AMBC +1.2%), and National Public Finance (MBI +1.8%) is an important one as - in what would have been a precedent-setting move - Detroit had asked a court to treat its general-obligation debt as unsecured and allow a recovery of just a few cents on the dollar, while treating debt owed to pensions
Instead, $287.5M of $388M of debt in question will be reinstated at par, and the remaining paper will be assigned to establishing an income stabilization fund for the city's "most vulnerable retirees."
Illinois' House and Senate have approved a bill that would increase employee contributions to two Chicago city pension systems and which will cut future cost-of-living increases for retirees.
The legislation will now go to Illinois Governor Pat Quinn for his signature.
The bill is an attempt to deal with a pension system that has a shortfall of around $20B, with some funds on course to run out of money withing a decade.
However, attempts to include tax increases to fund the pension systems were taken out the final legislation. In addition, Chicago Mayor Rahm Emanuel needs to deal with an increase of over $600M in annual contributions to the city's police and fire pension funds that's due to begin next year.
An agreement between Detroit and bond insurers Assured Guaranty (AGO), Ambac (AMBC), and National Public Finance Guaranty (MBI) would be a critical step as the city winds its way through Chapter 9 bankruptcy. Detroit emergency manager Kevin Orr has deemed about $410M of previously sacrosanct general-obligation debt as unsecured, a decision bond insurers - who would be on the hook for millions if the paper sees just the 15% recovery Orr has proposed - are howling about.
"Time is growing shorter," said Michigan Governor Rick Snyder in an interview today. "A lot of work is going on in the mediation process, with great urgency ... [the] best case" is for parties to reach a settlement. A deal, says the Journal, could be struck as early as tomorrow.
Puerto Rico has hired restructuring lawyers from Cleary Gottlieb Steen & Hamilton, prompting speculation that the commonwealth is about to revamp its $70B of debt. Puerto Rico wouldn't be drawn on what the law firm's specific role would be.
Cleary has represented a who's who of debt-laden countries, including Greece, Iceland and Argentina.
News of the hiring comes after Puerto Rico raised $3.5B in high-yield municipal bonds last month.
So far defying predictions for a second straight year of losses, municipals are ahead 3.6% YTD, their best start to the year sine 2009's 4.4% advance.
Supply remains tight, says fund manager Guy Davidson, but the big surprise has been stronger-than-expected demand. "Yields are still low by historical standards, and people are scratching their heads trying to figure out where to go now.”
This quarter's big gains come even as munis lost a bit of value in March, but a BAML study shows municipal paper rebounding in April 11 of the 15 times since 1989 when March has been in the red. There may be good reason for this: March tends to be a big month for issuance, 2nd only to June. Localities issued $27B this month, about double that of February.
"The removal of the ratings from CreditWatch reflects Puerto Rico's successful sale this week of $3.5 billion of GO term bonds with an 8.0% coupon and an effective yield of 8.73%," says S&P's David Hitchcock. "In our opinion, the sale will relieve near-term liquidity pressure on the commonwealth."
The agency affirms the island's BB+ rating with negative outlook.
Puerto Rico has sold $3.5B in tax-free bonds, above the $3B that the Commonwealth planned to sell, with the high yield of 8.727% helping to attract $16B in orders from 270 investors despite the risks - the government has been grappling with existing debt of $70B.
The new paper will mature in 2035 and provides Puerto Rico with up to a year-and-a-half of liquidity.
Retail investors are likely to see about twice as much in "leakage" when buying and selling municipal bonds as they do for corporate paper, according to the WSJ, and regulators - who bypassed the municipal market while helping reshape how Wall Street works - have this asset class in its their sights.
"We spend an awful lot of time on the equities side of the market where spreads are counted in pennies - and in the muni market, spreads are counted in dollars," says SEC Commissioner Michael Piwowar.
For their part, brokerages say munis cost more because they trade in lower volume and for smaller amounts than other securities.
"You think of how the retail industry has gone from the local grocery store to Wal-Mart to Amazon," says a municipal bond wealth manager. "In municipal bonds, we're still shopping at the local grocery store."
Puerto Rico's $3B debt issuance could happen as soon as tomorrow, reports Bloomberg. It would be the U.S. territory's first sale in two years and follows a cut in its credit rating to junk last month (by all three major agencies)
The muni market overall is expected to see $11B in long-term offerings this week, the busiest pace since late last year as 10-year muni bond yields fall to their lowest level since June.
Closely watched in the municipal bond market and by the monolines (MBI, AGO, AMBC) will be today's decision by a U.S. bankruptcy judge on whether Detroit's pledge to pay on general obligation debt is binding or whether it's merely a promise which a broke city can walk away from.
The impact could be a large one as GO debt has forever been considered secured debt and thus among the safest places to put money. Emergency manager Kevyn Orr has deemed about $410M of city GO paper as unsecured debt, and Detroit on October 1 defaulted on payment.
On the hook for millions of dollars, municipal insurers contend they and bondholders have first call on the property tax revenue necessary to make good on the bonds.
Also maybe coming today will be Orr's plan for restructuring and a bankruptcy exit.
Fitch becomes the 3rd and last of the major ratings agencies to cut Puerto Rico's municipal debt to a junk rating. "Recent downgrades have triggered new liquidity requirements and lowered expectations for the market available for the commonwealth's debt going forward."
In the meantime, Puerto Rico is going through with its debt offering, and has hired Barclays to lead the sale.
The junk ratings look to be forcing about $13B of Puerto Rico's $70B in muni debt out of Barclays' benchmark municipal bond index, and passive ETFs will likely be forced sellers of Puerto Rican paper, though most mutual funds can continue to hold.
Moody's says Puerto Rico's economic malaise, underfunded pension obligations and high deficit "have now put the commonwealth in a position where its debt load and fixed costs are high, its liquidity is narrow, and its market access has become constrained."
The Moody’s downgrade pertains mostly to the GO bonds, which effectively triggers downgrades on all subsequent notes and bonds.