To get the Best of the Bond Market delivered to your email daily sign-up here.
Every seller needs a buyer and in the case of Puerto Rico bonds, that buyer is likely to be a hedge fund. Michelle Kaske reports in today’s Bloomberg, that hedge funds are buying up the Puerto Rico debt, that private investors are abandoning in droves.
So what do they know that you don’t? David Tawil, co-founder of New York-based Maglan Capital says that the four-month slide in Puerto Rico bonds, along with the efforts being made by Governor Alejandro Garcia Padilla to turn around the shrinking economy has made Puerto Rico bonds more attractive.
“Over the next two years, the government should be able to make progress in their plans,” said Tawil. whose $60 million fund has earned 31% this year.
So is this a good time to invest in Puerto Rico? Not exactly, Tawil admits this is a risky strategy. “I plan to hand this baton off at some point to somebody else,” he said. “But right now I’m taking the baton at a pretty precarious point for the commonwealth.”
Puerto Rico’s economy fell 5.4% in August from a year earlier, the steepest plunge since 2010 according to GDB data, and is far from out of the woods yet. Whilst this is a bet many seasoned traders are perhaps willing to make. No one is suggesting you do the same, in fact even mighty PIMCO is avoiding dipping its toe in these shark infested waters.
You can read the full article here.
Ycharts: – Tax-free income the best revenge: Muni comeback. – with the yield on the 10-year Treasury and high quality corporate bonds still stuck below 3% what’s an income investor to do? Check out municipal bonds, that’s what.
Reuters: – RPT-Court to decide if Detroit really is broke. – In a federal court building in downtown Detroit, beginning on Wednesday morning, the largest municipal bankruptcy filing in U.S. history comes down to a single question: Is Detroit bankrupt?
Bloomberg: – California boosts yields on bonds in $2.3 billion sale. – California raised yields on some securities in the second and final day of a $2.28 billion sale of general-obligation bonds, its biggest such issue since April.
WSJ: – Banks rack up big fees from Puerto Rico bond deals. – In 87 deals since 2006, Puerto Rico and its public agencies sold $61 billion of bonds, giving the tiny island more municipal debt per capita than any U.S. state. In the process, the territory paid Wall Street securities firms, lawyers and others about $1.4 billion.
Bloomberg: – Pimco avoids Puerto Rico in tax-exempt funds amid island’s woes. – Pacific Investment Management Co. doesn’t hold Puerto Rico debt in its tax-free funds, and the company predicts that a lack of improvement in the island’s finances may increase volatility in other municipal securities.
Income Investing: – Beware ‘less benign’ muni market – PIMCO. – PIMCO today says we’ve “entered a less benign period for public finance,” with the U.S. economy struggling to gain momentum while state and local governments contend with rising healthcare costs and unfunded public pension plans.
Daily Herald: – ‘Sin’ tax hikes don’t yield long-term revenue spikes. – While state lawmakers continue to increase taxes on booze, cigarettes and gambling, revenues from the so-called “sin taxes” aren’t keeping pace. At $1.95 billion, the state generated almost the same amount in tax revenue from these vices in 2012 as it did in 2003.
Learn Bonds: – Is there wisdom in looking beyond bonds for yield? – Individual bonds bring many advantages to the table comparatively speaking: a guaranteed return of capital, a dependable stream of income, and control over maturity, credit quality, yield, and tax consequence. However, despite the benefits and flexibility inherent in owning them, the low interest rate environment has created relative bond yield deprivation, which, especially for risk sensitive investors, poses a dilemma.
David Fabian: – Bond bulls back in control. – The Federal Reserve decision not to taper its asset purchase programs during its September meeting, sent interest rate sensitive securities soaring. Since that announcement, we have seen a modest rally in fixed income that is looking like it might continue through the balance of the year.
Forbes: – Is ‘the bond rally of a lifetime’ finally over? – Many interest rate forecasters shout that the three-decade-long decline in Treasury bond yields is over, and they may be right—finally. These same pundits have been saying so repeatedly ever since rates started down in 1981.
Donald Van Deventer: – Dell Inc. bonds: A Silver Lake or a dark pond? – In this note we re-analyze the current levels and past history of default probabilities and credit spreads for Dell Inc. (DELL) updating the analysis in our note of July 24, 2013 in the light of the recently announced special dividend contemplated by the merger agreement with Michael Dell and Silver Lake Partners.
Income Investing: – Extension of credit cycle, QE bode well for junk bonds. – Bank of America Merrill Lynch says a moderately improving economy, with the likely extension of quantitative easing into next year, bodes well for the high yield market over the next six to nine months. BofA says rates are unlikely to rise sharply again, but rather should increase gradually once the Fed finally does get around to tapering. Against that backdrop, BofA says it expects continued inflows into junk bonds, a low default rate, and more refinancing activity and spread tightening.
IFR Asia: – Emerging market bond investors tame losses, eye positive 2014. – This year’s losses for emerging market fixed-income investors will be smaller than expected, and many believe the asset class will turn positive in 2014 despite an expected jump in rates.
George Spritzer: – Bill Gross sees value in depressed closed-end funds. – According to recent SEC filings, Bill Gross invested over $5.8 million of his personal money in four PIMCO closed-end bond funds on Monday. Mr. Gross often steps up to buy Pimco CEFs when he sees value. Sometimes he buys funds that he manages himself, but in this case, he purchased four funds run by other Pimco managers.
Trading Floor: – Bond Update: Where to find value on the back of the rally. – As mentioned yesterday, European corporate bonds have experienced a significant rally. The current levels indicate that some risk factors have been downscaled, while corporates in general are also in pretty good shape with default ratios at low levels.
FT: – Blackstone rental bond gets triple A rating. – A controversial new bond backed by rental income from foreclosed houses owned by private equity group, Blackstone, has been given an unexpected triple A credit rating.
Gross: Government gives banks a license to print money then claws some back for itself with penalties & fines. How much does the public get?
— PIMCO (@PIMCO) October 23, 2013
Current coupon MBS yields at a 4 month low
— David Schawel (@DavidSchawel) October 23, 2013
#Muni fund industry mutual fund outflows last week $4.8BIL, second largest ever.
— Fixedology (@Fixedology) October 23, 2013