Feb 13 High-yield U.S. municipal bond funds
attracted new cash for a fifth straight week even as major U.S.
credit rating agencies downgraded Puerto Rico to junk status,
data released on Thursday showed.
High-yield funds took in $161.2 million in the week ended
Feb. 12, beating a $96.1 million inflow seen the prior week,
according to Lipper, a unit of Thomson Reuters. Investment-grade
municipal bond funds reported an $82.1 million inflow after
suffering a $227.3 million outflow the prior week.
The demand for high-yield munis comes at a time when the
market faces a potentially precedent-setting bankruptcy case in
Detroit and uncertainty about Puerto Rico, which has some $70
billion in debt and could face nearly $1 billion in accelerated
payments on interest rate contracts after the downgrades.
Demand for discount Puerto Rico bonds could account for some
of the inflows. OppenheimerFunds recently ramped up its holding
of Puerto Rico debt in some of its municipal bond funds. [ID:
"Some of these bonds trade at 9 or 10 percent yields and 60
cents on the dollar," said Barry HoAire, a portfolio manager at
Bel Air Investments "Some you can buy cheaper than Argentinian
or Greek debt."
Puerto Rico bonds are popular among U.S. investors because
it is tax free in all 50 states
Investors may also be taking advantage of good buys on other
high-yield bonds that have suffered unfairly because of concern
over Puerto Rico.
"I think some people are thinking that once we get Puerto
Rico and Detroit behind us, a lot of these lower-rated credits
could catch a bid," HoAire said.