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Wednesday is crunch time for Detroit in the cities effort to declare some of its general obligation bonds as unsecured debt. The issue in front of federal bankruptcy Judge Steven Rhodes is whether a pledge of Detroit tax revenue to pay off the voter-approved bond issues is a binding obligation under Michigan law, as argued by bond insurers in two lawsuits, or merely a promise.
The outcome of the dispute has far reaching implications for the $3.7 trillion municipal market, where general obligation bonds make up some 60 percent of the issues sold in the last decade.
If Judge Rhodes rules in Detroit’s favor, it could result in investors losing faith in the muni market, not just in Detroit, but other states as well.
Investors always have considered the full faith and credit pledge by cities, school districts and other issuers to pay off those bonds “sacrosanct,” Natalie Cohen, the head of muni research at Wells Fargo Securities told Reuters.
But Detroit’s effort to declare some of its GO bonds to be unsecured debt could change that assumption.
“This is a significant issue for the bond community, not just in Detroit but in all cases, because the implication is that if the court finds these aren’t secured, this will go far beyond Detroit,” said Michael Sweet, a bankruptcy attorney with Fox Rothschild in San Francisco.
Reuters: – NY’s MTA sale tops light week for munis. – U.S. municipal bond sales are expected to total $2.2 billion next week, extending a run of light issuance that stretches back into the final weeks of 2013.
Businessweek: – Hedge funds said to request Puerto Rico borrow to last two years. – Hedge funds seeking to participate in Puerto Rico’s planned bond offering are asking that the commonwealth raise enough money to meet its needs for two years, two people with knowledge of the preliminary talks said.
FT: – Road trip to cheap tropical junk bonds. – There is no better time for Puerto Rico to pitch the U.S. with a huge junk offering, says John Dizard.
Investing.com: – U.S. 10-year Treasury note speculators added bearish positions. – Large futures market traders added to their overall bearish positions in the 10-year treasury note futures for a fourth straight week last week, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday.
Reuters: – U.S. high-yield muni bond funds lead inflows. – High-yield U.S. municipal bond funds attracted new cash for a fifth straight week even as major U.S. credit rating agencies downgraded Puerto Rico to junk status, data released on Thursday showed.
Bloomberg: – Emerging-market funds outflow surpass total 2013 sales. – Less than two months into 2014, global investors pulled more money out of emerging-market stock and bond funds than the total amount they retracted last year.
Reuters: – Dividends, debt and diversity drive emerging market value. – Despite the recent turmoil in emerging markets, there are strong long-term reasons why income investors should take an interest in the sector, writes Richard Titherington of JP Morgan Asset Management.
ETF Trends: – CEF ETFs to augment your income portfolio. – Investors looking to generate a little extra cash on the side can consider exchange traded funds that track closed-end funds.
Philly.com: – Daily Money Tip: This is a good time to take those profits. – You might not want to hear it, but it’s a good time to take profits by selling some big gainers in your portfolios – since that’s how you make money.
Stockhouse: – In the bond market, smart beats scared or oblivious every time. – Bond investors today fall into one of three categories: smart, scared or oblivious. Which one are you?
Globe and Mail: – Nine funds that combine safety and growth. – Exchange-traded funds get most of the attention these days, but mutual funds remain the predominant vehicle in Canadian wealth management. As of the end of 2013, ETF investments accounted for just 6 per cent of the $1-trillion under management in ETFs and mutual funds, according to Investor Economics.
Columbus Dispatch: – Forsaken last year, bond funds inching up. – Bond funds have made money this year while many stock markets around the world have faltered.
MarketWatch: – BMO asset management Inc. Launches seven new ETFs. – New equity and fixed income ETFs give investors opportunities for income and growth – Non-currency hedged and currency hedged products provide investors with more choice – Since its introduction in 2009, BMO AM’s ETF business has expanded to 58 funds and more than $12 billion in AUM.
Investment News: – The global bond market’s potential. – Many market participants and strategists recently have predicted higher “risk-free” rates, particularly in U.S. Treasuries, for this year.
ETF Database: – 6 Bond ETFs feeling the love in 2014. – While U.S. equity markets have gotten off to a rough start in 2014, interest in fixed income securities has finally resurfaced this year. Last year, most bond ETFs struggled to keep up with the equity market’s quick pace, with many funds ending in the red in 2013. But with the Federal Reserve beginning to taper its massive bond-buying purchases, many investors have begun to return to the coveted asset class.
— PIMCO (@PIMCO) February 16, 2014
Funding gap of the 100 largest US corp pension plans peaked in July 2012 at -$546b, and declined to -$140b as of January 2014
— David Schawel (@DavidSchawel) February 17, 2014
Investing in countries w/ worst trailing real 5yr GDP growth beats best GDP by over 10% per annum. HT: CSFB
— Meb Faber (@MebFaber) February 16, 2014
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