MuniLand

A visit with BlackRock’s muni managers

BlackRock

The New York offices of BlackRock, the giant fund manager, crackle with the energy of money. BlackRock is the largest fund complex in muniland, with over $100 billion in municipal fund assets along with undisclosed amounts of separately-managed accounts that hold municipal bonds.

Peter Hayes leads the BlackRock Municipal Bonds Group. He is also a member of the Americas Fixed Income Executive Team and BlackRock’s Global Operating Committee. Hayes is muniland’s biggest kahuna. When he and his team talk, people listen.

Hayes, BlackRock’s head of municipal credit research Jim Schwartz and head muni strategist Sean Carney hosted reporters for a discussion last week.

Hayes said that muniland was oversold at the end of 2013. Now he is seeing a bigger crossover presence chasing yield. Crossover refers to non-traditional buyers who don’t use the municipal tax exemption.

Tax hikes on high income earners have helped produce steady muni fund inflows since January 15, according to Hayes. BlackRock has also had good growth in separately managed accounts (SMA). Muniland issuance is down 25 percent in 2014. Relative value is lower than the pre-crisis level, and Hayes says we may be in this environment for the duration of 2014. It is the strongest technical environment in some time, says Hayes.

Best of muniland tweets

Here are the best tweets with the #muniland hashtag for June 9, 2014:

 

Best of muniland tweets

Here are some of the best tweets with the #muniland hashtag on June 6, 2014:

 

Best of muniland tweets

Here are some of the best tweets from the #muniland hashtag on June 5, 2014:

 

Best of muniland tweets

Here are some of the best tweets from the #muniland hashtag on June 4, 2014:

 

Kentucky’s big pension mess

Kentucky

The Kentucky Employees Retirement System (KERS-Non-Hazardous), the nation’s most poorly-funded state pension with 23 percent of the assets needed to cover liabilities, suffered a legal blow last week. As of last June, KERS had only $3.1 billion of assets to cover the $11.3 billion in retirement commitments that it had made and $8.26 billion of unfunded liabilities.

Should the 41,000 active employees, 40,000 inactive employees and 37,000 retirees in Kentucky be worried about the security of their pensions? Given recent events, they probably should.

In a pivotal court case last Friday, U.S. Bankruptcy Judge Joan A. Lloyd ruled that an insolvent non-profit agency, Seven Counties Services, is not part of the Kentucky government and may leave KERS. This could clear the way for other financially strapped non-profit agencies across the state to flee soaring pension costs and leave KERS with more stranded liabilities. (Judge Lloyd’s opinion here). The Kentucky Courier Journal wrote:

Bond issuance is declining in muniland

Thomson Reuters

There has been plenty of analysis about declining muniland bond issuance at the gross level, but very little diving down into more specific monthly data. MSRB’s EMMA platform provides the data for parsing.

When looking at 2011 data it is important to remember that the Build America Bond program expired December 31, 2010 (taxable municipal bonds that carried special tax credits and federal subsidies for either the bond issuer or the bondholder). BABs had drawn a lot of municipal issuance forward into 2010 that might normally have been done in 2011.

The overall number of new bond issues per month has declined for the last three years. Issuers refunding their bonds to get a lower interest rate increased in the first quarter of 2013 and then declined in the first quarter of 2014 (see chart above):

Kevyn Orr’s misinformation campaign

Detroit emergency manager Kevyn Orr appeared at Michigan’s annual Mackinac Conference, the gathering place for Michigan’s political elite. Orr (@MotownEM) had some stunning things to say:

 

 

Visualizing muniland

If you are an investor, an analyst or a taxpayer, finding information about the outstanding debt for a state or a city is a mixed lot. Some issuers, like New York City and Connecticut, do an excellent job of providing information. Massachusetts remains the gold standard. Many other issuers though have out-of-date and incomplete information.

New York City graphs general obligation debt principal and interest repayment. The city has a repayment schedule and $41.9 billion of GO debt outstanding.

NYC

Illinois has daily cash tracker that shows how much has come in and gone out of the general fund (with $156 billion in overall debt outstanding):

De Blasio blows off bond signals

Thomson Reuters MMD

Have the bond vigilantes begun to crack the whip at New York City Mayor Bill de Blasio? Capitol New York reports:

According to a report in Bloomberg News [May 21], UBS Global Asset Management and RidgeWorth Capital Management Inc. will each reduce their holdings of [New York City] debt due to concerns over the 8 percent in retroactive raises included the mayor’s proposed contract with the United Federation of Teachers, and his $8.2-billion affordable housing plan.

‘We’re concerned with what Mayor de Blasio might do in working with the unions, things like this housing project that he’s looking at with not having a full understanding of how he’s going to pay for it,’ Ebby Gerry, who works for UBS, told Bloomberg News. ‘We’re watching pretty closely.’

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