New austerity and confidence in Puerto Rico
Five months after Puerto Rico officials talked publicly to market participants, they held an investor call on Thursday with over 2,000 people.
There is always a lot of attention directed at muniland about the number of municipal securities outstanding when the Federal Reserve releases its updated Flow of Funds report (recently renamed the Financial Accounts of the United States report). This data gives a measure of how much municipal borrowing has expanded in the previous quarter. Reuters’ Lisa Lambert wrote about a small increase of outstanding muni debt and shifts in ownership patterns in the first quarter of 2013. Direct ownership of muni bonds by retail investors is declining, while institutions have increased their holdings.
More of interest to me is the macro picture for muniland’s financial assets. The Fed’s report lists the financial assets of municipalities in the same table as the financial liabilities. While muni debt has increased since 2007, financial assets, bloodied by the extra burden carried by state and local government during the Great Recession, have declined.
This decline in financial assets, when coupled with lower-funding of public pensions, paints a gloomy picture for muniland. Expect belt-tightening to continue.