A Reason For ConcernA near halt in economic growth stops the Fed in its tracks. The U.S. economy tapered off to 0.2% GDP growth in the first quarter of 2015 marking a third consecutive quarter of declining output. Slumping business spending and falling exports are to blame. Much of what businesses produced ended up in stockpiles. Fed downgraded both the pace of growth and labor market conditions in its assessment of economic conditions this week.

Muni Yields FallWeekly average 10-year yield fell to 2.01% in April from 2.12% in March despite higher new issue supply of $44 billion in April compared to $41 billion a month earlier. Amid lower yields high yield muni funds saw a seventh consecutive week of inflows.

Despite Ratings Puerto Rico Bonds Are Not EqualPrices of Puerto Rico bonds dropped to record lows as the tax proposals defeat in the House of Representatives dealt a setback. Regardless of security provisions that vary widely across Puerto Rico issuers, S&P dealt a blanket downgrade of Puerto Rico bonds. COFINA first lien bonds carrying superior security (5x coverage) are rated the same as COFINA second lien bonds that have good coverage (around 2x) both S&P CCC+. Puerto Rico G.O. bonds, the same CCC+ and the Aqueduct and Sewer Authority ditto. The result: Distorted Pricesindividuals selling at distressed prices are supplying informed value seekers with high yield bonds.

PREPA Hires GoldmanBondholders agreed to extend forbearance until June 4, 2015. PREPA hired Goldman Sachs as a possible underwriter for a potential financ-

ing transaction. GMS believe bondholders will receive favorable treatment.

Atlantic CityAtlantic City is unlikely to file for bankruptcy as its emergency manager proposes other ways to close a budget deficit, Standard & Poor's said. Kevin Lavin, the financial overseer appointed by New Jersey, has outlined options including possible job cuts and debt-payment deferrals to close a $101 million shortfall this year.

Reform in Michigan ContinuesState aid to Michigan cities has grown for three straight years reversing earlier declines. Statewide property values have grown for two years in a row. State oversight has helped twelve Michigan cities. Enacting several long term financial stability moves led Flint to exit state imposed emergency management with a transition to local control under a transition advisory board.

Chicago on The MendWe are not just fixing our fiscal mess because it is the right thing to do, Emanuel said. We are doing it to support our larger goal of creating jobs for all of our residents and restoring eco-nomic growth to all of our neighborhoods. Budget management will help Chicago to end pushing off debt into the future.

Headlines Dont Tell The StoryThe $3.6 trillion municipal market has a history of being swayed by scary headlines. With scanty access to bond research, the mass market relies on headlines for informa-tion. Isolated problems are often general-ized to include unrelated bonds. This misinformation haunts the market long after fiscal solutions have been found. In essence, misleading headlines can signal an entry point for informed investors.

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May 2015

Muni Week 5/4/2015Review / Preview

Economy Halts Fed Muni Yields FallAll Puerto Rico Bonds Are Not Equal

Puerto Rico Governor Rebukes Default TalkGovernor restates talks of Puerto Rico not paying its debts is ridiculous. Our credit is the future of our infrastructure, roads, ports, schools and hospitals which will lift the country. Some-times we talk about the possibility of not paying our debts this is folly, Governor Padilla, said last week in his annual State of the Commonwealth. The Governor mentioned not only wealthy inves-tors own PR Debt, Puerto Rico debt is also owned by many Puerto Ricans who have put life savings in Puerto Rico government bonds.

Speculators Buying Puerto Rico BondsBuying Puerto Rico bonds may be too stressful for most individual investors. Pros such as mutual funds, pension funds, equity funds and hedge funds are locking in historic yields. The PREPA ad hoc group verbally offered to buy 40% or $1.3 billion of the new financing expected in June aimed to provide liquidity for the Government Dev. Bank. In exchange they want PREPA to pay bondholders in full.

Constitutional Power of Puerto Rico GovernorIf the Puerto Rico Congress doesn't reach a con-sensus the Governor said he will take all necessary action allowed within his constitutional powers where a legislative vote is not needed. Puerto Rico leaders are asking for consensus to develop a balanced budget including spend-ing cuts and tax collection mea-sures for quick implementation.

Build America Champion Has New Infrastructure Bond PlanU.S. Lawmakers are renewing efforts to expand the use of taxable

municipal bonds to attract private investment in the nations crum-bling roads and bridges. Senator Ron Wyden, the Democrat who backed legislation creating the $188 billion market for Build America Bonds, introduced a bill Monday that would facilitate the use of private activity debt for transportation projects. Companies use private activity bonds to borrow in the municipal market.

Municipal Bond Sales Poised to Climb With Redemptions Rising 34%Municipal bonds sales in the U.S. are set to increase in the next month while the amount of redemptions and maturing debt rises. States and localities plan to issue $10.4 billion of bonds over the next 30 days, according to data compiled by Bloomberg.

Once Shunned By Investors Cal-ifornia April Tax Collections $1.6 Billion Above EstimatesA few short years ago ill-informed pundits said bankruptcy was the states only answer to budget defi-cits. California collected $1.6 bill-ion more revenue from income taxes in April than what Governor Jerry Brown estimated as its coffers fill with surplus money from an accelerating economy. The most populous U.S. state took in $13.8 billion in April, while Brown had projected $12.2 billion, according to data from Controller Betty Yee released Friday.

Kansas Schools Close Early as Tax Cuts Squeeze RevenueAs lawmakers work to erase a pro-jected $800 million budget gap, at least eight school districts that saw funding cut this year because of a greater-than-projected slide in state collections will begin shutting

down before the scheduled end of classes. Dozens of others have eliminated or cut programs.

Second Quarter Outlook Hinges on April Jobs ReportOn the heels of disappointing first quarter growth, the April jobs report is critical for clarity as to whether the economy is forcefully rebounding or limping into the current quarter. If payroll growth returns to trend, forecasters and policymakers will more firmly embrace the view that first quarter weakness was transi-tory. However, if April jobs report resembles sluggish March, this will exacerbate concerns.

Hurricane Free Stretch Has Insurer Bracing For StormsFlorida hasnt been hit by a hurri-cane since 2005, the longest stretch in more than a century. Its state run property insurer isnt taking any chances. Even though forecasters predict this year will produce the fewest named Atlantic storms since 1997, Citizens Property Insurance, which provides coverage when other insurers wont take the risk, is selling as much as $1 billion of municipal debt to raise cash just in case. It would be the insurerss first bond sale in three years.

Information obtained from sources deemed reliable; GMS does not purport Review/Preview contains all available information.

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