Investors should avoid buying municipal bonds from Puerto Rico, that’s the message from the president and CEO of Lebenthal Holdings.
“Run fast away from Puerto Rico,” Alexandra Lebenthal told CNBC in a “Squawk Box” interview on Wednesday. “Puerto Rico Electric Power Authority has been the big issue that people have been focusing on for a long, long time.” The big uncertainty is whether the authority will be able to make its January payment, she said.
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“One little light of hope is the price of oil going down could be helpful,” she said, “but it’s a bad situation.” CNBC has reached out to the utility, which did not immediately comment.
Earlier this year, there were concerns that tough times in Puerto Rico might destabilize the entire municipal bond market. “That has proven to be untrue,” Lebenthal said. On the flip side, she said she likes municipal bonds from states such as Virginia and Maryland.
When deciding on whether to buy muni bonds, the Lebenthal CEO said, investors should consider the tax implications. “It’s your tax bracket and it’s what state you live in,” she said, “because remember, you are going to have to pay state taxes if you own bonds in a state in which you don’t live.”
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U.S. News: – Have bonds lost their safety? – The Barclays U.S. 10+ Year Corporate Bond Index has returned an average of 7.17 percent annually over the past 10 years. These returns have helped retirees earn a steady “paycheck,” with less concern about the volatile market. However, the days of putting the bulk of your money into bonds or bond funds and leaving your portfolio on autopilot are over. As the Federal Reserve begins to normalize their monetary policy, by raising rates, bond investors could lose a lot of their nest egg.
WSJ: – Bad day for bonds may be just noise. – As the Dow Jones Industrial Average was soaring to new heights Tuesday, U.S. Treasurys had their worst day in more than a year.
WSJ: – U.S. Government bonds pull back in thin trading. – U.S. Treasury bonds pulled back for a second straight session on Wednesday as investors cashed in some chips from the strong rally this year.
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High Yield Bonds
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Bloomberg: – Russia on verge of junk as S&P puts rating on negative watch. – Russia may lose its investment-grade credit rating for the first time in a decade after Standard & Poor’s said it’s considering a cut amid the country’s worst economic crisis since the 1998 debt default.
Business Insider: – Russia begins a $100 billion debt bailout as its bonds face ‘junk’ rating. – Russia has begun bailing out the debt of its private and state-run companies and banks, which is denominated in dollars, according to Reuters.
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Bonds starting to respond to economic data. A new paradigm?
— Ed Bradford (@Fullcarry) December 24, 2014
Macro tourists now as long the long bond as they were short in Jan. Not sure what consensus opinion is but consensus positioning is long
— Peter Tchir (@TFMkts) December 24, 2014
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