Re:Puerto Rico files for biggest ever U.S. local government ...
by prostoalex on Wednesday May 03, 2017 @11:48PM
(#14262308)
If you're a mutual fund or an ETF with exposure to PR municipal bonds, you're looking at somewhat of a loss come tomorrow morning.
If you have any spare cash on hand (investor inflows, interest payments and bonds redemptions on other bonds) your choices are:
1) Hold cash, the more the better, in order to prop up the value of the fund.
2) Lend it to another borrower.
I'd say that if you expect a smooth sailing or are in a situation where investors cannot liquidate, strategy (2) is reasonable. But even then you might want to extract some better terms from the borrower by quoting PR as a scare factor.
Most funds, however, will expect either investor outflows or markdowns in other municipal bonds with similar characteristics. For better or for worse, the municipal market is frozen for a new borrower, at least for the next few days.
If you have any spare cash on hand (investor inflows, interest payments and bonds redemptions on other bonds) your choices are:
1) Hold cash, the more the better, in order to prop up the value of the fund.
2) Lend it to another borrower.
I'd say that if you expect a smooth sailing or are in a situation where investors cannot liquidate, strategy (2) is reasonable. But even then you might want to extract some better terms from the borrower by quoting PR as a scare factor.
Most funds, however, will expect either investor outflows or markdowns in other municipal bonds with similar characteristics. For better or for worse, the municipal market is frozen for a new borrower, at least for the next few days.