Puerto Rico Proposes Debt Restructure Deal and Today’s Other Top Stories

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Puerto Rico Governor Alejandro Garcia Padilla has proposed legislation that would allow certain public corporations to restructure their debt.

The so called ‘Recovery Act’ allows public utilities such as the Puerto Rico Electric Power Authority and the Puerto Rico Aqueduct and Sewer Authority to negotiate with bondholders to change their debt loads. But it will exclude changes to general-obligation bonds and debt backed by sales-tax revenue.

“The Recovery Act is created to provide a clear legislative framework that allows public corporations to address their financial difficulties without compromising any essential services provided by these corporations,” David Chafey, chairman of the Government Development Bank, which works on the commonwealth’s debt sales, said in a statement.

The move comes a day after New York Federal Reserve Bank President William Dudley warned Puerto Rico about its growing debt load and questioned if the island can sustain its high level of borrowing in remarks delivered to an accounting group on Tuesday.

Following the announcement, yields on Prepa bonds surged. Agency debt that matures in July 2017 rose to an average yield of 22 percent, a record high and up from 12 percent when it last changed hands in April, according to data compiled by Bloomberg. That’s equivalent to about 64.7 cents on the dollar.


Todays Other Top Stories


LearnBonds: – Boeing stock looks overpriced. – As one of two leading manufacturers of commercial jetliners in the world and the second largest defense contractor in the country that spends more than any other on its military, Boeing is one of the jewels of American industry. An anchor of the U.S. export economy, and a member of the Dow Jones Industrial Average since 1987, it’s consistently considered one of the best-managed and most admired companies in the world. But it’s not like BA never has a down cycle.


Municipal Bonds

Miami Herald: – State’s bond rating wouldn’t be junk. – Fitch Ratings says a failure to repay the bonds that financed the 38 Studios deal would negatively affect Rhode Island’s bond rating, but not sink it to junk status.

MarketWatch: – Tobacco bonds prove unlikely muni market leaders. – Opportunistic buyers like hedge funds have supported a rally in tobacco bonds this year, as the embattled corner of the high-yield municipal bond market shrugs off a dominating narrative of decline.

WSJ: – Tobacco bonds feel heat from e-cigarettes. – John Miller isn’t quitting tobacco bonds, but the growth of electronic cigarettes means he might get burned.

CNBC: – Fed’s Dudley sounds alarm over Puerto Rico’s high debt load. – New York Federal Reserve Bank President William Dudley warned Puerto Rico about its growing debt load and questioned if the island can sustain its high level of borrowing in remarks delivered to an accounting group on Tuesday.

Crains Detroit Business: – Detroit lighting debt illuminates bankruptcy stigma: Muni credit. – A debt sale by an agency responsible for illuminating the streets of bankrupt Detroit will put a spotlight on bondholders and their willingness to lend after investors took an unprecedented cut on city general obligations.

BlackRock: – Changing interest rates + Munis: 3 things investors should focus on. – Municipals have rebounded after a sell-off slump last year to outpace the rest of the fixed income markets this year. Peter Hayes discusses the effects changing rates can have on municipals and offers three areas investors should focus on.

Franklin Templeton Investments: – Mid-year muni market update. – The municipal bond market faced a rather tough year in 2013, with news of troubles in Detroit, Puerto Rico and elsewhere scaring off some investors. This year hasn’t exactly been smooth sailing for the muni market either, but the waters seem a bit calmer and many investors have returned to the sector.

Reuters: – Court stops Illinois city’s planned bond sale. – The U.S. Securities and Exchange Commission received an emergency court order on Wednesday to keep the city of Harvey, Illinois, from selling bonds this month.

Nasdaq: – Large outflows detected at ETF. – Looking today at week-over-week shares outstanding changes among the universe of ETFs covered at ETF Channel , one standout is the iShares National AMT-Free Muni Bond ETF (Symbol: MUB) where we have detected an approximate $32.5 million dollar outflow — that’s a 1.0% decrease week over week.


Bond Market

LPL Financial: – Bond market perspectives – Behind the curve. – Despite the Fed labeling the recent inflation increase as “noise,” longer-term bond yields rose, inflation expectations increased, and the yield curve steepened — all signs of the bond market pricing in inflation risks. As the low inflation pillar of year-to-date bond strength fades, it may be one more reason to be cautious in the bond market.

FT: – ‘Crowdfunding’ muscles in on the bond market. – Crowdfunding is coming for the bond market. Two UK restaurant chains have raised fixed-income debt in the past week through Crowdcube, a crowdfunding platform with 75,000 registered users.

TheStreet: – Why SEC Chair Mary Jo White’s transparency push is good for bonds. – Increased transparency in corporate and municipal bond markets could revolutionize online trading platforms and allow smaller traders to participate in an asset that has largely been dominated by institutions.


Treasury Bonds

4Traders: – Treasury bonds rise, as investors seek haven assets. – Treasury bonds rose on Tuesday as investors bet that major central banks wouldn’t be in a rush to raise interest rates amid uneven global economic growth and escalating turmoil in Iraq.

Market Realist: – Why the demand for four-week Treasury bills fell in the past week. – The U.S. Treasury auctioned $25 billion in one-month T-bill issuance on June 17. The issuance amount for one-month bills have been decreasing over the past four weeks. Issuance, which stood at $45 billion at the May 28 auction, has now come down to $25 billion. The demand (as reflected in the bid-to-cover ratio) for these bills fell in this week, as investors began to shun fixed-rate bonds on inflation expectations.


Investment Grade Bonds

Donald van Deventer: – Target corporation bonds: Expect more, pay less. – Target Corporation’s 10 year annualized default probability is 0.23%, which ranks in the safest 10% of the retailing peer group. However, they rank in the bottom one-third of all heavily traded bonds on June 23 using the criterion of credit spread to default probability ratio.


High Yield Bonds

Citywire: – Blockbuster bond manager reveals HY ‘no go’ zones. – Global high yield is in good shape but there are still several pockets of the market investors should steer clear of, according to blockbuster bond manager Russ Covode.


Emerging Markets

The Province: – Despite Argentine woes, emerging market debt story ‘is positive’. – Argentina’s latest debt crisis is another black eye for emerging markets, but fixed-income investors who trade in the region are unfazed by the troubles and remain steadfast about the high-quality, high-yield opportunities that reside in the developing world.

Ivy Funds: – Are opportunities coming in emerging market debt? – The investor appetite for emerging markets has been somewhat fickle. Depending on the day’s headlines, investors have vacillated between embracing the potential and fleeing the possible risk.


Investment Strategy

Forbes: – Interest rates to scream higher when Fed stops the music. – The music has been playing and fixed-income investors have been enthusiastically dancing since 2008.  During the past six years the Federal Reserve’s dovish stance has pushed interest rates to all-time lows while volume has been declining over the past few years.  Normally rates and volume are in lock step….volume decreases and rates rise.  Not this time however.  The question is, “what happens when Janet Yellen turns off the music”?

Income Investing: – Look for gains in bank bonds, corporate bonds, emerging markets. – Yields may look pretty lousy across the bond market but that doesn’t preclude a few rich-looking sectors from continuing to outperform. That was among the take-aways from a webcast hosted by Ken Leech, chief investment officer at Western Asset Management. Leech acknowledged the ongoing trend toward unconstrained bond investing, and named some of his favored sectors.

Chicago Tribune: – Can’t decide where to invest? You’re not alone. – If you are agonizing over where to invest your money, you aren’t alone. The pros are there with you — nervous about stocks and bonds as clear opportunities become fuzzy in both. As the best and brightest fund managers talked at Morningstar’s three-day conference in Chicago last week, they repeatedly expressed reservations.


Bond Funds

MarketWatch: – Bond mutual funds hold more cash than you think. – If there comes a day that retail investors decide to pull all of their money out of bond mutual funds at once, it would register pretty high on the list of bond market nightmares.

NY Times: – Why Government pension funds became addicted to risk. – Back when interest rates were high. Pension funds could buy bonds — ideally bonds that would mature around the time they would need the money to pay pensioners — and use the interest on those bonds to fund the payouts. But as interest rates began their long fall, pension funds faced a dilemma.

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