Munis: The High-Yield Evolution

April 5, 2014 8:45 AM
By Daniel S. Solender, CFA

Among the key changes in the high-yield muni market in recent years: More billion-dollar issuers. 

The high-yield municipal bond market has been on the rebound in 2014 after a rough 2013. In fact, momentum has picked up in 2014, with a year-to-date return of 5.4% for the Barclays High Yield Municipal Bond Index  (through February 28), versus a gain of 3.1% for the broader Barclays Municipal Bond Index.  Investors who may be thinking of kicking the tires of the high-yield muni market should be aware that it has changed greatly in the last several years. In my latest Municipal Matters column, I've identified six key developments in this category since 2007, just before the start of the financial crisis. I'll spotlight one of the biggest changes here.

One factor for investors to consider: There are more large issuers in the high-yield muni market than in years past. There are now 13 obligors or issuers that have more than $1 billion in market value of bonds in the index, compared with just two in 2007, according to Barclays Point. The issuers are certainly more diversified, since the only two in that category in 2007 were American Airlines and Continental Airlines (muni bonds are issued for airlines for purposes such as construction of airport facilities). The list now includes airlines, tobacco-settlement bonds, offerings from various Puerto Rico issuers, Jefferson County (Alabama) sewer bonds, and tax-exempt bonds of the Iowa Fertilizer Co. The top 10 issuers have $28.1 billion in par value outstanding, as of February 28, 2014, compared with $9.4 billion for the top 10 at the end of 2007, according to Barclays Point.

You can read more about the evolution of the high-yield muni market here. We invite you to share your thoughts about the topic in the Comment section, below.

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