Detroit Hammers out Deal with Bondholders and Today’s Other Top Stories

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The city of Detroit has reached a deal with the bankrupt city’s unsecured general obligation (GO) bondholders, a development that could serve as an important stepping stone toward a restructuring of its broken finances.

Mediators in Detroit have agreed to pay unsecured bondholders about 74 percent of the $388 million they are owed as part of an effort to resolve key disputes in the city’s record $18 billion municipal bankruptcy.

The remaining 26 percent of the bond payments will be assigned to support pension plans for city workers “to insure that the most vulnerable retirees remain above the federal poverty line,” mediators appointed by the U.S. Bankruptcy Court in Detroit said today in a statement. The agreement is subject to a judge’s approval.

Failure to reach agreement with the city’s unsecured GO bondholders was one of the key factors which forced Detroit to file for bankruptcy in July 2013, citing more than $18 billion in debts it cannot repay.

While general obligation bonds represent a small amount of Detroit’s overall debts, a settlement should make it easier for the city to pursue a forcible restructuring plan through a legal process called a “cramdown” if other creditors balk at taking a haircut.

 

Todays Other Top Stories

Municipal Bonds

Bloomberg: – Puerto Rico’s new general-obligation debt trades at lowest price. – Puerto Rico’s new general-obligation bonds have fallen to the lowest price since their sale last month after the Government Development Bank said it hired law firm Cleary Gottlieb Steen & Hamilton LLP.

Bloomberg: – Florida County approves bond sale to boost port eyed by Beckham. – Officials in South Florida approved as much as $225 million of revenue bonds for the port of Miami to construct an underwater traffic tunnel to give trucks faster access to Interstate 395.

FT: – Illinois legislature passes Chicago pension fund reform. – The Illinois legislature has passed a plan to overhaul two of the funds in the Chicago pension system, by far the most underfunded of any large US city.

MoneyShow.com: – Muni fund favorites. – Yields of bonds generally have declined (with rising prices) amid signs of slowing economic growth. What’s more, the finances of state and local governments, overall, have improved since the financial crisis. We recommend intermediate-term funds, with average maturities of five to eight years. They carry less interest-rate risk than long-term vehicles, while offering a significant yield advantage over short maturities.

 

Education

Fox Business: – How to invest in junk bonds. – Phoenix Investment Advisers founder Jeff Peskind , FOX Business contributor Bob Ross give tips for investing in junk bonds.

udemy.com: – Bond ETF: A beginner’s guide. – The Bond ETF is regarded as an efficient and affordable way to access different types of corporate and government bonds. Like other investment products, bond ETFs have risks and rewards. But lately, investors have been pouring much more cash into bond ETFs.Bond ETFs attract investors because they are liquid, easy to access and use, and have low trading costs. Interested in learning more about ETFs?

 

Treasury Bonds

WSJ: – Treasurys rise for 4th day. – After an initial pullback, U.S. Treasury bonds regained strength Tuesday and extended their winning streak into a fourth straight session. The price rebound reflects buyers’ belief the Federal Reserve will be in no rush to raise interest rates amid a low threat of inflation.

Market Realist: – Why the Treasury bills auctioned last week remained high in demand. – Treasury bills (or T-bills) are short-term debt obligations issued by the U.S. government through a single-price auction, meaning all the competitive and noncompetitive bidders are issued T-bills at a yield quoted by the lowest bidder. As the bill price and its yield share an inverse relationship, the lowest yield gives the U.S. Treasury the maximum proceeds from an auction.

 

Corporate Bonds

ETF.com: – Corporate debt sales raise ETF questions. – U.S. companies issued $317 billion in debt in the first quarter—the most in five years—and ETF investors will soon have access to a lot of these bonds through various corporate-bond ETFs. But given the specter of rising rates, investors should think carefully about the way such “spread” products work in a rising-rate environment.

Businessweek: – Exit anxiety seen as mutual funds hog corporates. – The biggest buyers of U.S. corporate bonds since the financial crisis may be the least likely to stick around when the Federal Reserve raises interest rates.

 

High Yield

Bullfax: – Bond managers warn against complacency amid low defaults. – Global default rates may be low, but that should not blind investors to the risk of companies issuing high-yield bonds going bust, according to fund managers.

Advantage Voice: – Still too early to exit high yield. – In recent days, several articles have questioned whether high-yield bonds and leveraged loans still offer enough potential return to compensate for their higher credit risk. So why should you think about retaining some high yield in your portfolio?

Moody’s: – Moody’s: North American high-yield bond covenant quality improves in March. – The covenant quality of North American high-yield bonds improved in March, after it had reached a record low in February, Moody’s Investors Service says in a new report, “Bond Covenant Quality Rebounds From a Record Low Set in February.” Stronger covenants for B-rated bonds led to the improvement, which was constrained by a high percentage of high-yield lite bonds also during the month.

 

Emerging Markets

Businessweek: – Emerging-market ETFs halt exodus as money leaves tech stocks. – Investors are piling into emerging-market exchange-traded funds at the fastest pace in seven months as they dump technology companies in favor of cheaper stocks.

ETF.com: – 4 Best Emerging Market Bond ETFs YTD. – Here, are the four best-performing emerging market bond ETFs so far this year—a mix of strategies that share only one common denominator: They all invest in dollar-denominated debt and avoid bonds denominated in local currencies.

 

Investment Strategy

LearnBonds: – Bond investment strategy: Considering opportunity cost. – Given the 30-year “bull run” that bonds have experienced, many investment strategists are urging caution on buying/holding fixed-income securities. The commonly held belief is that rates will trend higher, spelling problems for those that own bonds. While there may be a general “risk” to owning bonds in a rising rate environment, the peril is generally quite different from the hazards endemic to the stock market.

InvestorPlace: – Why employment data affects stock and bond ETFs differently. – Carmignac Gestion has rejected the notion that inflation is returning to Europe while also making moves to reduce its exposure to US high yield and China over the past month.

Citywire Money: – Star bond manager slashes shares exposure. – Star bond fund manager Richard Woolnough has slashed exposure to shares in his M&G Optimal Income fund, arguing they were no longer at the ‘ridiculously cheap’ levels they reached last year.

 

Bond Funds

Yahoo Finance: – Tide turns from many out-of-favour funds. – Such was the case with mutual funds last quarter. The types of funds that did best were often those that investors rushed to exit in 2013.

Morningstar: – Bond market outlook. – With low yields and stretched valuations, today’s bond market is a lot more about bond picking and building specific risk into the portfolio.

WSJ: – Long-Term mutual fund inflows $6.74 billion in latest week. – Long-term mutual funds reported estimated inflows of $6.74 billion in the latest week as investors added to equity, bond and hybrid funds.

 

 

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