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May 17, 2018

Tobacco second only to Puerto Rico

by Thomson Reuters.

Tobacco has been the second best performing muni bond sector thus far in 2018, trailing only Puerto Rico. As of May 7, 2018, the S&P Municipal Bond Tobacco Index was up 4.29% year to date. This compares to a loss of 1.02% for the S&P National AMT-Free Municipal Bond Index, an outperformance of 5.31%.

New Jersey refunded $3.15 billion of tobacco bonds in April, including all of the ‘B’ rated Series 2007 Bonds. The potential refunding of this series was officially announced on March 6th, 2018 in a notice posted to EMMA. Interestingly, this date seems to correspond to the start of a rally in several tobacco names, including the Buckeye Tobacco Settlement Financing Authority (Ohio), the Northern Tobacco Securitization Corp (Alaska), and the Tobacco Settlement Financing Corporation (Virginia). Could this be a sign that the market expects the tobacco bond refunding trend to continue?

Chart 1: TRPS Closing Bid Prices for Select Tobacco Bonds

Source: Pricing Service


Chart 2: TRPS Closing bid Yield Spread to AAA Benchmark for Select Tobacco

Source: Pricing Service

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