Perspectives Blog

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

…erge, investors should remain vigilant toward any municipalities that may be headed for similar fiscal distress. Puerto Rico bonds Tempted by the siren song of higher yields and triple tax-exempt income, some muni bond funds made large bets on Puerto Rico. However, the island’s fiscal woes and huge debt load (including underfunded pension obligations) have put PR bonds in troubled waters. Recent news reports indicate that several fund managers ar…

Compelling opportunity in municipal bonds

Catherine Stienstra, Senior Portfolio Manager | November 7, 2013

…ts 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 bonds, a historically steep yiel…

Gut check: The outlook on fixed income

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

…nger 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 attractive alternatives with less rate sensitivity. The headlines are not trivial — especially Puerto Rico — but…

What’s the outlook for muni bonds?

James Dearborn, Head of Municipal Bonds | June 19, 2014

…ource: Goldman Sachs, May 23, 2014. Past performance does not guarantee future results. Illinois, New Jersey and Puerto Rico headlines aside — Vast majority of state and local issuers experiencing credit improvement Although some prominent “bad apples” will try to spoil the whole bunch, we believe that recent negative budget developments in Illinois and New Jersey, as well as ongoing stress in Puerto Rico are more the outliers than the norm in mu…