Contrary to past experience and conventional wisdom, general obligation bonds are not sacrosanct and very low recovery rates are possible. Pensioners and other politically favored classes are likely to be treated more kindly than bondholders. Chapter 9 bankruptcy appears to be ineffective at addressing underfunded pension liabilities and will likely remain a rarely used option.
The advantages of buying municipal bonds at a premium What are premium, par and discount bonds? Premium bonds carry a coupon rate that is higher than current market interest rates and have a market value above 100 cents on the dollar. Par bonds carry a coupon rate equal to current market interest rates and trade
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
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