As we start the New Year, Puerto Rico remains in focus for municipal investors. For Cofina bondholders, recent news has been mostly positive; the restructuring plan is on track to be finalized and the bankruptcy judge is expected to confirm the plan this week – marking a major milestone for the island. Meanwhile GO bondholders are seeing significant volatility. A joint legal motion was filed this week challenging the legality of certain GO bonds issued by the island. The motion was filed by the Financial Oversight and Management Board for the Commonwealth of Puerto Rico and the Official Committee of

The Impact of the Proposed Menthol Ban on Municipal Tobacco Bonds In the 1920s, a person named Lloyd “Spud” Hughes came up with a novel idea of adding menthol flavoring to cigarettes in order to give the illusion of a “cooler” smoke. This would spur the development of the menthol cigarette in the United States. Over the years, it would become the mainstay for a large portion of the smoking population. The era on menthol cigarettes, however, could be coming to an end. Last Friday the Wall Street Journal reported that the US Food and Drug Administration (FDA) was pursuing

Late Friday on October 19, the Financial Oversight and Management Board for Puerto Rico (the Board) filed a disclosure statement with the federal bankruptcy court. The filing, on behalf of COFINA, lays out the Board’s plan of adjusting the outstanding sales tax bonds. The 800+ page document provides additional details on the debt restructuring plan itself, including a list of all creditors that will be impacted. Under this plan, the security pledge and projected recoveries are expected to be unchanged from the original proposal. However, the structure was slightly modified with an increase in the allocation of capital appreciation bonds

The general tone of the municipal market continues to be neutral, but optimism is building overall, at least for the short term. When looking at the long term, even with higher interest rates seemingly assured Twelve percent of the more constructive traders see a move lower in yield for both the 10-year and 30-year MMD AAA spot rates of 4 to 6 basis points. PMs predicted even more significant moves, with 40% seeing drop in yield of 7 bps for the 10yr MMD spot rate and 20% expect a possible move that large for the 30yr range. Bearish respondents are

NEW YORK (Reuters) – U.S. states could reap billions in online sales tax revenue and buttress their budgets after the nation’s top court ruled on Thursday that e-commerce companies could be forced to collect the money, even if they have no physical presence in a state. The Supreme Court’s ruling in favor of South Dakota and against Wayfair Inc and two other online retailers was a victory for state governments, and a boost for brick-and-mortar stores. The effect is expected to be positive and widespread because 45 states impose sales taxes and until now were barred from requiring those companies

Bank of America Merrill Lynch holds the top spot among municipal bookrunners through  June 20th,  leading 225 deals with proceeds totaling nearly US$26 billion, according to Thomson Reuters. The number of deals by BAML, however, are down by 43 compared to the same period a year ago. Citi is holding the No. 2 spot with 178 deals totaling to US$18.5 billion in proceeds. Moving up two spots to the number 3 position is Morgan Stanley, which has run 141 deals that have garnered US$13.1 billion. Dropping back one spot to the number 4 position is J P Morgan with US$11.7

Municipal debt funds rose 0.99% on average for the month of May after declining 0.25% for April. The single-state municipal debt funds macro-group climbed 1.03% on average for May, while general & insured municipal debt funds added 1.12% to their April month-end values. Lipper’s High Yield Municipal Debt Funds classification (+1.28%) posted the strongest return of the national municipal debt fund classifications. Of the single-state offerings, the California Municipal Debt Funds classification posted the strongest return for the month, gaining 1.29% on average. Source: Lipper On the estimated fund flows side of the equation investors were net purchasers of municipal debt

Puerto Rico Sales Tax Bonds, better known as COFINAs, have been some of the best performing muni bonds in 2018, having risen in value by nearly 110% between January 2, 2018 and June 20, 2018[1]. This is quite a move for any financial security in less than 6 months, nonetheless a defaulted municipal bond. Still, this isn’t particularly surprising given the rally in many Puerto Rico names over that same time frame. Just look at the price graphs of some of the largest Puerto Rico issuers since January 1st: A rising tide lifts all boats as they say, and an

Municipal debt funds declined 0.25% on average for the month of April after rising 0.35% for March. Single-state municipal debt funds declined 0.31% on average for April, while general & insured municipal debt funds mitigated losses slightly better, declining 0.28%. Lipper’s High Yield Municipal Debt Funds classification (+0.04%) posted the only plus-side return in the municipal debt funds universe (ex-municipal money market funds, which on average were up 0.10% for the month). The Massachusetts Municipal Debt Funds classification suffered the largest decline for the month, losing 0.42% on average. Source: Lipper On the estimated fund flows side of the equation

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

BAML’s bookrunning tally is the largest at just under $14 billion so far in 2018, but the number of deals is down, not just for the No. 1 bookrunner but across the top 10. Table 1: US Municipal – Bookrunner (AT1) Source: Deals Intelligence Table 2: Top Five Largest Municipal Long Term Deals (April 1, 2018 – April 30, 2018) Source: Deals Intelligence

According to Thomson Reuters MMD, 10yr and 30yr BBB rated Revenue bonds have outperformed the MMD AAA benchmark curve by 20-25bps since late 2016.  The chart above depicts MMD’s BBB Revenue 10yr and 30yr maturities spread to the MMD AAA.  Meanwhile bonds such as cusip 38122NYM8 have outperformed the MMD AAA by as much as 50bps over the same period in secondary trading. The MMD AAA is the US Municipal Bond Yield Benchmark used to measure price and rate movements.  For more credit and rate research sign up for a free TM3 trial here or email clientservice@tm3.com for more information.