Perspectives Blog

Puerto Rico’s turbulent ride

Michael Taylor, Senior Municipal Analyst | September 26, 2013

Puerto Rico’s economic contraction and fiscal decline is persistent, well-documented and widely acknowledged within the municipal marketplace. For Puerto Rico, continued access to affordable capital remains imperative for the maintenance of fiscal operations, liquidity, and maintaining investment-grade agency credit ratings. We maintain the opinion that investing in Puerto Rico municipal bonds remains appropriate only for investors who can tole…

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

Why has Puerto Rico become such an issue now? Should investors be concerned with a downgrade or default? Is Puerto Rico a systemic risk for the municipal market? Historically, Puerto Rico (PR) bonds’ high yield and triple tax exemption (federal, state and local) had been a big lure for many institutional investors, such as mutual funds. PR debt exposure in municipal bond funds, namely single-state municipal bond funds, proved advantageous for sh…

Puerto Rico’s credit challenges intensify

Columbia Management Municipal Investment Team, | July 23, 2014

Puerto Rico’s new debt restructuring law led to a Moody’s downgrade. Our assessment of the relative strength of Puerto Rico’s general obligation bonds remains unchanged, as they are not covered by the new law. While we believe that the constitutionality of the new law will be heavily contested, the implications of a voluntary default to revenue bond creditors would be material. In late June, Puerto Rico signed a law that makes it easier…

Puerto Rico’s double-downgrade

Michael Taylor, Senior Municipal Analyst | February 10, 2014

What’s behind the downgrade of Puerto Rico’s credit ratings by Standard & Poor’s and Moody’s? The double-downgrade puts pressure on Puerto Rico to shore up its finances in the coming weeks A future default or debt restructuring could rattle investor confidence and impact all municipal market issuers On February 4, Standard & Poor’s lowered its long-term credit rating on the Commonwealth of Puerto Rico’s (PR) general obligat…

Fear is not a strategy

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

…t, 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 some lessening of sell…

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…

Gut check: The outlook on fixed income

Colin J. Lundgren, CFA, Head of U.S. Fixed Income | February 24, 2014

…bonds suffered with most other high-quality fixed-income sectors in 2013. The asset class tends to have longer durations so rising rates can be challenging. Munis also suffered from negative headlines (such as Detroit, Puerto Rico) and persistent outflows. But the underperformance of the sector appeared excessive to us. Any fixed income asset class that has duration warrants some caution, but intermediate- and high-yield muni funds may be attract…