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Taylor Riggs The Bond Buyer

Taylor Riggs The Bond Buyer. The President’s Proposed Budget Issuance Trends Rate Dynamics. Proposed Budget. Limits tax deductions to 28% Effectively 11% tax on muni interest for 39.6% bracket 2014 budget caps 33%, 35%, 39.6% earners Lobbying efforts from NLC, NABL, SIFMA, MBFA, BDA.

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Taylor Riggs The Bond Buyer

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  1. Taylor RiggsThe Bond Buyer The President’s Proposed Budget Issuance Trends Rate Dynamics

  2. Proposed Budget • Limits tax deductions to 28% • Effectively 11% tax on muni interest for 39.6% bracket • 2014 budget caps 33%, 35%, 39.6% earners • Lobbying efforts from NLC, NABL, SIFMA, MBFA, BDA

  3. Proposed Budget • AFF: 28% subsidy vs. 35% for BABs • Direct-pay starting 2014 • Applauded by dealers but concerns remain after BABs subsidy cut in sequestration

  4. Proposed Budget • Establish National Infrastructure Bank • Cigarette tax increase to $1.95 from $1.01 - Credit negative for tobacco bonds

  5. Sequestration • Issuers redeem BABs under ERP as payments reduced by 8.7% • Central Texas Regional Mobility Authority redeems $45mm June 5 • Monona, Wis., redeems $7.6mm • Horicon, Wis., redeems $2.45mm

  6. Issuance • YTD issuance up 2.9% • Jan up 53%, Feb-April down 1-10% • New money up 15%, refunding down 3% • Taxable up 136%, tax-exempt down 7% • Fixed rate up 2%, variable rate up 81%

  7. Interest Rates

  8. Credit Spreads

  9. Muni-Treasury Ratios January 2, 2013 April 30, 2013

  10. Mutual Fund Flows • YTD $7.4bn inflows • 8 weeks of outflows starting March 6 • Seasonal outflows started earlier this year • Beginning of “great rotation”?

  11. Interest Rates • GDP grew 2.5% Q1 2013 • Fed continuing $85bn a month purchases • Fed funds rate at 0%-0.25% • FOMC prepared to “increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes”

  12. Interest Rates • SEC Commissioner warned of financial “armageddon” • Money on sidelines waiting to be reinvested at higher rates • Traders want higher rates, increased liquidity

  13. Market Concerns • Puerto Rico GOs downgraded in last 6 months: Baa3/BBB-/BBB- • A downgrade to junk affects mutual funds • PREPA: Baa2/BBB-/BBB- • PRASA: Ba1/BB+/BBB-

  14. Market Concerns • Detroit: state appointed emergency manager Kevyn Orr stated publicly all creditors should expect to take cuts. • Most bonds carry insurance from monolines

  15. Market Concerns • Stockton: allowed to file Chpt 9. • If CalPERS included in negotiations, market could see increase in bankruptcy filings • One of the first where municipality called for significant concessions from bondholders

  16. Market Concerns • Moody's: downgrades outpace upgrades for Q1 2013 • Par amount of downgraded debt fell to $27bn • Upgraded debt increased to $10bn • Local gov’t rating changes dominated, particularly in California • negative outlook on most public finance sectors.

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