Perspectives Blog

Detroit’s collateral damage

Ty Schoback, Senior Municipal Analyst | October 24, 2013

The State of Michigan’s failure to preserve the integrity of the General Obligation (GO) pledge in Detroit has greatly undermined the market’s confidence in debt issued within Michigan. It has also resulted in increased borrowing costs for other Michigan entities. The State communicated to investors the UTGO security pledge of local governments should not be considered any stronger than a basic appropriation or lease, raising significant concer…

Detroit bankruptcy — One year later

Ty Schoback, Senior Municipal Analyst | August 18, 2014

…ool for reducing unfunded pension liabilities, despite the bankruptcy judge’s ruling that pension claims are considered unsecured obligations and subject to impairment within the confines of Chapter 9. In the summer of 2013, Detroit filed the largest municipal bankruptcy in history. One year on, how has the filing played out and what insights can be gleaned? Detroit’s bankruptcy has not had negative systemic effects on the broader municipal mark…

Municipal market ghosts of past, present and yet to come

James Dearborn, Head of Municipal Bonds | December 9, 2013

December 3, 2013 — a seminal day in muni pension discussion. Ghost of Christmas Past – good times were had by all. Ghost of Christmas Present – sobering reality as negotiations continue to go nowhere. Ghost of Christmas Yet to Come – rising above the Detroit debacle. In the annals of public finance history, December 3, 2013, will likely be remembered as a seminal day in which the nature and direction of debate about large unfunded pensio…

Fear is not a strategy

James Dearborn, Head of Municipal Bonds | November 18, 2013

…tween May and August, the exodus from muni bond funds was the largest in decades and left the market reeling. Also, rumblings from the Fed about taking away the QE punch bowl spooked the market while negative headlines out of Detroit and Puerto Rico fueled investor fears. Not surprisingly droves of muni bond investors headed for the exits. With the Fed back on the sidelines, September and October saw a return to more normal trading ranges and som…

Compelling opportunity in municipal bonds

Catherine Stienstra, Senior Portfolio Manager | November 7, 2013

Municipal bond market movements have provided an attractive opportunity to lock in attractive yields. Although credit problems in Detroit and Puerto Rico made headlines, these issues are not representative of the broad municipal market — the number of municipal defaults is at its lowest level since at least 2009. With rising tax rates, the advantages of tax-exempt income can be considerable. Attractive yields vs. corporate and Treasury b…

Trouble in paradise: Q&A about Puerto Rico bonds

Chad Farrington, CFA, Head of Municipal Bond Credit Research and Senior Portfolio Manager | January 2, 2014

…hard to pinpoint exactly what set the current sell-off in motion. It is likely that the torrent of negative media attention toward PR bonds in the midst of an overall flight from fixed income, not to mention the high profile Detroit bankruptcy filing this summer, contributed to investors’ concerns about other weak municipal issuers. Puerto Rico’s financial problems have been simmering for decades. The Commonwealth has an ailing economy, recurrin…

Puerto Rico’s double-downgrade

Michael Taylor, Senior Municipal Analyst | February 10, 2014

…ic market risk. PR is one of the largest issuers in the municipal market with more than $70 billion in outstanding debt across its issuing bodies (not including unfunded pension liabilities) and is widely held. By comparison, Detroit has less than $8 billion in outstanding debt. A future default or debt restructuring of some kind would likely do even more damage by rattling investor confidence in an asset class that has generally been seen as a b…