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While fund managers, financial advisors, and a growing population of domestic and international investors appear to remain fixated on all things Puerto Rico, the municipal bond marketplace generally has posted positive performance so far this year for those who have remained invested and focused on the broader fundamentals.
Authored by James Colby
I turn your attention to some fundamentals in the municipal bond market that may take your mind off the snow and cold that have dominated headlines this winter. First, a thaw in the chilling performance of 2013 appears to have occurred so far this year for tax-exempt investors. Since the tapering comments the Fed made in May of 2013 and subsequent municipal fund redemptions, investors appear to have become comfortable with many analysts' expectations that increases in interest rates are to be modest in 2014.
It is difficult, I believe, to imagine that there is an investor who has no opinion on recent events affecting the Commonwealth of Puerto Rico. The actions recently taken by the three leading bond rating agencies to move the ratings of certain Puerto Rico issues to below investment grade have created a firestorm of commentary and angst over the possibility that Puerto Rico, the ninth largest issuer of tax-exempt municipal bonds, might default on its payment obligations.
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Please note that the information herein represents the opinion of Jim Colby and these opinions may change at any time and from time to time. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Global. © 2013 Van Eck Securities Corporation. MUNI NATION is a trademark of Van Eck Associates Corporation.
All indices listed are unmanaged indices and do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
Any discussion of specific securities mentioned in the commentary is neither an offer to sell nor a solicitation to buy these securities.
Municipal bonds are subject to risks related to litigation, legislation, political change, conditions in underlying sectors or in local business communities and economies, bankruptcy or other changes in the issuer’s financial condition, and/or the discontinuance of taxes supporting the project or assets or the inability to collect revenues for the project or from the assets. Bonds and bond funds will decrease in value as interest rates rise. Additional risks include credit, interest rate, call, reinvestment, tax, market and lease obligation risk. High-yield municipal bonds are subject to greater risk of loss of income and principal than higher-rated securities, and are likely to be more sensitive to adverse economic changes or individual municipal developments than those of higher-rated securities. Municipal bonds may be less liquid than taxable bonds.
The income generated from some types of municipal bonds may be subject to state and local taxes as well as to federal taxes on capital gains and may also be subject to alternative minimum tax.
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