Van Eck Global - Since 1955


Game Changer? - Friday, 06/27/2014

According to The New York Times, "[A] new law [proposed by the government of Puerto Rico] intends to create an organized process through which some of its debt can be cut or reduced. It would apply to at least $22 billion owed by public corporations including the electric authority, the aqueduct and sewer authority, and the highway authority. The legislation does not apply to Puerto Rico's general obligation debt, which officials say carries constitutional protections that bondholders must be repaid."

Yesterday, on that news, the debt of those authorities saw the bid-side of the market sink 3-5 points ($ price), depending upon the size of the block being offered, while the recently issued Puerto Rico general obligation (GO) 8's (8% coupon bonds, issued in March 2014 and maturing on July 1, 2035), which are very actively quoted, rose some 3 points ($ price) to $88.25. This morning these bonds were being quoted from $88.625 – $89.125.

After many months of the Commonwealth fending off suggestions that it was going down a path toward some sort of restructuring, this news could seem to be a game changer. We now must wait to see what the Legislature does with the proposal and if the Puerto Rico courts might have a say in the outcome. It could also be fair to say that this is evolving out of an environment that is challenging economically as well as politically.


 jim_colby_signature 

 

Important Disclosure 

Van Eck Associates Corporation does not provide tax, legal or accounting advice. Investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service.

Please note that MUNI NATIONs written by Jim Colby represent his opinions 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. © 2014 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.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 888.MKT.VCTR | 888.658.8287. Please read the prospectus and summary prospectus carefully before investing.  

Not FDIC Insured — No Bank Guarantee — May Lose Value 

Van Eck Securities Corporation, Distributor
335 Madison Avenue, 19th Floor
New York, NY 10017
888.MKT.VCTR | 888.658.8287