Puerto Rico Calls in Bankruptcy Lawyers and Today’s Other Top Stories

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Puerto Rico’s fiscal turmoil took a turn for the worse yesterday, after the WSJ reported that the commonwealth’s fiscal agent has hired a well-known restructuring law firm, raising the prospect that the financially troubled island is preparing to revamp its finances.

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The Government Development Bank for Puerto Rico, which oversees all of the commonwealth’s debt deals, announced it had hired restructuring lawyers at white-shoe New York law firm Cleary Gottlieb Steen & Hamilton.

Emily Glazer and Mike Cherney report on the hire in Wall Street Journal:

“It is unclear what Cleary Gottlieb’s role will be for the Government Development Bank for Puerto Rico, which announced in early March it is working with a unit of restructuring adviser Millstein & Co. to analyze its liquidity, debt load and cash flow as it tries to boost its finances.”

Cleary, is a well known specialist law firm which has represented many financially challenged government clients in the past, including Greece, Iraq, Iceland and Argentina.

The news spells trouble for Puerto Rico bondholders who stand to suffer large losses if the government is successful in restructuring its debt load.

There is added concern for investors because, unlike Detroit and other United States municipalities, Puerto Rico cannot file for federal bankruptcy protection, making the prospect of a restructuring by the commonwealth potentially even more uncertain to creditors because there is no clear template.

 

Todays Other Top Stories

Municipal Bonds

Kiplinger: – A Muni fund that pays more. – It’s been a feeble year for municipal bond funds. But if you’re looking for decent yield and you’re in a high tax bracket, muni bonds, which pay interest that is generally free of federal income taxes, still make sense.

Bloomberg: – Westchester joins record wave of N.Y. pension IOUs. – New York state and localities including Westchester County borrowed a record $1.4 billion to cover retirement contributions this year, showing how even the wealthiest communities are struggling to make the payments.

ETF Trends: – Muni ETFs stand out in fixed-income space. –  In the fixed-income market, investors may find that municipal bonds and related exchange traded funds are a more attractive play than Treasuries or corporate debt.

 

Income Investing

LearnBonds: – Breaking down March jobs data. – The March jobs data is finally in. The ink was not yet dry before the rationalization, excuses and truth stretching began. We break down the jobs data and report the U.S. employment situation as we see it.

 

Treasury Bonds

Motley Fool: – How positive jobs numbers could lead to a bond sell-off. – iShares Barclays 20+ Year Treasury Bond  could see renewed selling pressure after last week’s nonfarm payroll employment report confirmed that the economy is in a steady recovery. According to the U.S. Bureau of Labor Statistics, nonfarm payroll employment rose by 192,000 in March, slightly beating estimates of 185,000. The unemployment rate was flat at 6.7%.

Fox Business: – Wall Street sells off as shift from risk persists. – U.S. equity markets took a hit for the third-straight session as traders ditched risky assets in favor of safe havens like utilities, consumer staples and Treasury bonds.

WSJ: – Treasury bonds move higher. – Treasury bonds extended their winning streak into a third straight session on Monday as concerns that the Federal Reserve may raise interest rates sooner than expected continued to ease.

 

Corporate Bonds

Otmane El Rhazi: – Corporate bonds aren’t the next bubble despite low yields. – U.S. corporate bonds are not in a bubble despite the spread over Treasuries falling below a 25-year average this month, said an economist with Capital Economics.

 

High Yield

FT: – Junk bond investors dig deep for value. – Just as hopeful prospectors venture back to abandoned gold mines in California, so fund managers are engaged in a similar quest to find overlooked nuggets in the global junk bond market.

Citywire: – Don’t let low defaults lull you into high-risk bonds. – 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.

 

Emerging Markets

Bloomberg: – Goldman sees Orban risk as Hungary bonds lag. – Goldman Sachs Group Inc. said Hungarian Prime Minister Viktor Orban’s re-election means “unpredictable” policies that risk weighing on growth, as the nation’s bonds suffer East Europe’s worst returns after Russia.

WSJ: – Investors snap Up $1.5 billion in bonds from Brazil’s BNDES. – Investors continued their Brazilian buying spree this week, snapping up $1.5 billion in bonds sold by the government-run National Bank for Economic and Social Development, or BNDES, and more deals are expected.

Reuters: – In low-yield world, defaulters to get warm welcome back. – From Greece to Ecuador to Pakistan, countries that not long ago saddled bondholders with multi-billion dollar defaults, are set to re-enter global markets, cashing in on investors’ desperate need for higher-yielding assets.

 

Investment Strategy

Citywire Global: – Carmignac cuts US HY and China exposures. – 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.

PIMCO: – Avoiding losers is as important as picking winners in high yield markets today. – It is no secret that global high yield markets continue trading near their all-time low yields that were reached in May 2013. With average yields at 5.39% for the U.S. and 3.77% for Europe (as measured by BofA Merrill Lynch U.S. High Yield and European Currency High Yield indexes as of 14 March 2014), we are still looking at a “medium yield” more than a “high yield” bond market.

About.com: – Reassessing Fed policy on a day-to-day basis is foolish. – It’s time for investors to calm down. With the U.S. Federal Reserve now well into the process of tapering its quantitative easing policy, investors are tripping over themselves to interpret how each individual piece of economic data affects the potential timing of the Fed’s first interest-rate increase. The most recent example was Friday’s jobs report, which prompted the media to pore over each element of the numbers to gauge the likely path of Fed policy.

Adam Aloisi: – Are you chasing yield in retirement? – With cash and near-term investment grade fixed-income investments possessing rather inconsequential yields today, retirees are needing to up their game to up their portfolio payout. This means looking at longer duration or lower credit bonds in addition to consideration of large-cap, garden variety dividend growth and more robust options from more esoteric corners of the equity world.

MotleyFool: – How to avoid reaching for yield and de-worsification. – In this age of near-zero interest rates income-starved investors have been gravitating toward high yielding companies. While there is nothing inherently wrong with this kind of income investing, several rules must be followed to avoid disaster.

 

Bond Funds

Gary Gordon: – Disappointing employment data impact stock and bond ETFs differently. – Volatility, while hardly overwhelming, is on the rise again. Meanwhile, the Vanguard Extended Duration Treasury Bond (EDV) continues to climb higher.

PIMCO: – Moving forward with the normalization of yields. – One response to yield normalization is to consider retaining core bonds and diversifying the specific risk factor of concern, in this case duration. In the past, global bonds have captured most of the upside but avoided a significant amount of the downside relative to domestic-only bonds.

 

 

 

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