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U.S. investors are catching up on badly valued city debt


Investors Infiltrate US $ 4 Bonds Dollars, bringing the yield of debt issued by state and local governments across the country to the lowest level ever recorded.

The restless appetite of investors has helped government agencies, governments, to cover low borrowing costs, sometimes raising more money than bankers working on pre-projected projects.

Yield on ICE BofA bonds fell 0.95% this week, the lowest level since its inception in 1991.

According to Refinitiv’s Lipper fund flows, about $ 49 billion has been poured into city bond funds this year, with larger tranches of lower-quality debt. Despite a fair calculation 5 percent According to some market estimates, Moon bonds with unhealthy ratings increased by a quarter of the inflow to just over $ 12 billion.

“It’s such an incredible market for issuers,” said Eva Lando, portfolio manager at Thornburg Investment Management. “Interest rates are so low and demand is so high.”

In particular, munitions debt, particularly unhealthy debt, has been pushed back by the same forces that pushed US stocks to record lows and maintained yields in large parts of the stable income market. near the last low levelsIn the United States, portfolio managers are investing in investments that may offer higher returns than treasuries because of the cash flow from zero-rate stimulus programs in the United States.

But the strength of the market is a disgrace to those who feared the epidemic could waste the finances of US urban communities. As the economy hit harder than it feared at first, tax revenues hit less և Despite tensions and, in some cases, a real disaster, municipal finances were delayed.

From July 2020 to April this year, tax collection increased in 45 of the 47 states providing information to the Urban Institute over the same period last year. More than 40 states reported higher annual corporate and personal income taxes, and 38 had higher general tax collections.

Congressional assistance filled the gaps that some states and cities feared would be difficult to close when they made budget forecasts in the face of the crisis. Peter Block, Ramirez & Co’s chief strategist, said some of the public finances were in the state he had seen for years, given the aid.

This alleviated fears that the state’s local government could face a downgrade in the coming months. Moody’s analysts noted this week that while government borrowing rose last year as governments responded to the health crisis, federal aid was helping to reduce the median debt-to-income ratio to a 20-year low.

Moody’s Credit Specialist Ted Hampton said the loans were made by “several major states, some of which are likely to be repaid soon.”

ICE BofA Municipal Bond Yield Bar Chart (%), which shows that investors have accumulated in US government bonds, yielding yield

Demand for city bonds has also grown as the Biden administration has demanded higher taxes to fund new healthcare, education and infrastructure projects. The buyer of tax-exempt city bonds does not pay federal taxes on the proceeds of the debt;

“Many tax havens have been squeezed for generations,” Block said. “Tax-free moon bonds are one of the last tax havens that are easily accessible to the average person, somewhat marketable.”

Asset Manager Veon Miller, mayor of Nuvin, says recent deals have been significantly over-subscribed.

A group of municipal agencies և state agencies have already taken advantage of investor demand this year, և even rare borrowers are tempted to enter the market.

American Samoa, the US territory with a useless rating, which was last used by Moon investors in 2018, has started selling bonds, which can lead to tens of millions of dollars.

Many borrowers were able to close on more favorable terms than the bankers said before launching new debt market roadmaps. These include the Washington DC Transit Authority, which borrowed $ 784 million in late May, and the Chicago Transit System, which raised $ 121 million this month.

Enthusiasm spreads across the whole spectrum of borrowers. The California-based agency, which plans to create a senior living community called Enso Village, has sold a 35-year bond with a lower-than-expected yield of 4.43%. Lando says the debt has been “repeatedly over-distributed.”

Statutory schools are also particularly active in debt repayment this year. Investors often consider schools more risky than lending to the public school system, given that they are not covered by the tax authority of local governments. This month, Build NYC Resource Corporation borrowed $ 18 million to fund a new seven-story school for 600 students in the Bronx.

“When the market is really lively, you tend to see some deals that you kind of scratch your head at and say it might not happen in normal times,” said Scott Diamond, Goldman Sachs Asset Management Fixed Income Co-Chair.



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