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