Have the bond vigilantes begun to crack the whip at New York City Mayor Bill de Blasio? Capitol New York reports:
One of muniland’s most accurate forecasters, Tom Kozlik of Janney Capital Markets, has some astonishing numbers in a new report. He predicts that total municipal bond sales for 2014 will drop to between $250 and $275 billion. That is a big fall from 2013 issuance of $330 billion. Here are some of the factors that Kozlik used to develop his rationale for a shrinking muniland:
Municipal bond insurers have been working to regain market share. Insurers like Assured, National Public Finance and Build America Mutual have active sales forces that are placing large advertising campaigns in trade publications and were big sponsors at the recent National Financial Municipal Analysts conference.
Puerto Rico’s plan for a balanced budget for fiscal year 2015 is ambitious. Economic conditions continue to worsen and the commonwealth had a massive tax revenue shortfall in April. Although bondholders were a promised a balanced budget, uncertain tax collections are threatening a smooth transition away from deficit financing. There appears to be a growing political struggle as Puerto Rico attempts to cut $1.5 billion in operating expenses from a $9.6 billion budget.
Eight out of ten times when state and local governments need to borrow money, they go to the municipal bond market. The public information repository EMMA, which is offered by the MSRB, allows anyone and everyone to assess how the borrowing affects the borrower’s capital structure and predict whether bondholders will be paid back.
Yesterday an anonymous Twitter account that had been known only by the moniker “The Bond Girl” revealed herself to be an official with the Kentucky School Facilities Construction Commission. In other words, she is a public official. Her name is Kristi Culpepper. Bloomberg reports that she said in a phone interview from her home in Frankfort, Kentucky, “I changed my name on my account. I felt like it.” She declined further comment.
Puerto Rico’s April tax collections suffered a big collapse. The projections were missed by 27 percent, or $442 million. The data was released last Friday. The April shortfall, caused mostly by reduced corporate income taxes, imperils year-end budget figures. It also jeopardizes the recently proposed fiscal year 2015 budget that was proposed by Puerto Rico Governor Alejandro García Padilla.
Are public workers overpaid in relation to private workers? It’s a big question. There are conflicting schools of thought. On the left, Ezra Klein has asserted there is “[a] lot of jealousy toward public employees, most of it powered by an impression that public employees get more money for less work.” On the other end of the political spectrum, the right-leaning Heritage Foundation claims that public employee benefits, i.e. lifetime pensions, are undercounted. A full accounting would show that public-sector workers are more highly compensated than those in the private sector for equivalent work.
Tax-exempt investors have their own special metabolism. They seem not to react to bad news until someone presents them with an old newspaper and commands them to sit down and read it. The facts seem to startle the coupon clippers—why did no one tell them?— whereupon the market goes to pieces. Certainly, such was the case with Puerto Rico last summer (Grant’s, April 5, 2013). The commonwealth didn’t rack up all that debt by itself; a sleepy and guileless bond market was its co-dependent.
For retail investors, it has always been a little murky where their municipal bond trades are executed. Municipal bonds can officially trade on the New York Stock Exchange Bonds platform, but they rarely do. Instead, almost all municipal bond trades happen over-the-counter between dealers via alternative trading platforms like Bonddesk (a part of Tradeweb that is majority-owned by Thomson Reuters) or The MuniCenter. Unlike the equity market, municipal bond brokers are not required to disclose where they execute a specific trade.