VanEck Vectors High-Yield Municipal Index ETF

Tobacco bonds are one of the largest, most liquid, and highest-yielding segments in the municipal bond space (HYD) (ITM) (SMB).

2017 was a good year for both the stock market (SPY) as well as the debt market.

The services provided by municipal borrowers have always been, and remain, vital to our everyday life. The need to protect these services from possible disruption has become ever more important.

Tobacco bonds have been volatile in the last seven years. Falling MSA payments caused the volatility. Tobacco bonds offer relatively good cash flow returns.

Tobacco bonds could still be a decent investment. When there’s a default, tobacco bonds behave differently than corporate bonds.

The most important factor that’s impacting settlement payments under the MSA is US cigarette consumption. People don’t smoke that much anymore.

Tobacco bonds are a highly liquid, large, and high-yielding sector. Tobacco bonds belong to the municipal high-yield bond market (HYD).

Despite its bankruptcy filing, Puerto Rico has the option to negotiate with its creditors outside the court. It could go through a process equivalent to a Chapter 9 bankruptcy filing.

The board overseeing Puerto Rico (PZT) (HYMB) filed for bankruptcy protection in a much-anticipated move in 2017.

Treasuries recorded a spike in their yields last year due to the sell-off after Donald Trump’s victory.

With their high yields, low prices, and tax-efficient returns, muni bonds (HYD) (ITM) could be available to investors at a dirt cheap rate in the coming months.

The downfall for muni bonds (HYD) (ITM) (MLN) began in October 2016 after the muni market was flooded with new issues for state and local governments.

Puerto Rico is currently in a meltdown mode. Over the past decade, it has accumulated $70.0 billion in public debt, which is close to 68.0% of its GDP.

President-elect Donald Trump’s tax reforms could bring cheers from taxpayers, but the tax bracket changes may not be well received by muni bond investors.

After investors’ post-election U-turn, some tailwinds turned to headwinds for municipal bonds. Investors moved money out of bond funds amid expectations of a Fed rate hike.

Immediate-term bonds (ITM) are better placed since investors take less of an interest rate risk.

With a longer duration of the intermediate bonds rate curve, ITML is best suited for investors who are uncertain about the movement of interest rates in the near future.

As of September 30, 2016, ITMS has all of its investments in US dollar-denominated bonds with a credit rating of “A” or higher, thus ensuring lower risks.

In September 2016, VanEck introduced two new ETFs that provide exposure to intermediate-term municipal bonds.

Richard Bernstein Advisors has reduced its exposure to US Treasuries in the fixed income space.

In his latest monthly investment outlook for June 2016, bond market veteran Bill Gross talked about “carry” in financial markets.

BUTCHER: Thank you. Do you see any specific opportunities today? COLBY: I think there are two fairly distinct opportunities for investors to consider. One is based on interest rates and interest rate outlooks. The other is based on risk that investors might be willing to assume on a credit basis. From an interest rate perspective, […]

Likewise, while municipal bonds have outperformed the S&P 500 Index and bonds with comparable ratings, Puerto Rico munis have under performed in comparison.

Public corporations account for about 40% of the total outstanding debt of Puerto Rico.

Puerto Rico’s labor force participation rate was about 40% in April, 2014.

Total municipal bond issuance in the first quarter of 2014, was $62.6 billion, down ~26% from the $84.3 billion issued in the first quarter of 2013.

Portfolio durations differ from key rate durations, as even though the durations of two portfolios may match, both portfolios may differ in the maturity profiles of the bonds they comprise, which will result in differing key rate durations.

Puerto Rico’s general obligation bonds have been recently downgraded to junk level by rating agency S&P.

High yield ETNs are favored in the market as much as high yield ETFs.

We note that net or effective returns (that is, returns after expenses) fall to 7.95% versus perceived returns of 8.44% for TLT for the past three years.