The rally in rates drove municipal prices much higher in June, with only a subtle widening of spreads that coincided with the sharp rallies in treasuries. June was one of the most active months of municipal bond issuance since 2009, as $45.2 billion of new supply was priced and easily absorbed by the market.

The combination of higher yields relative to similarly rated global sovereign bonds, very strong and consistent mutual fund inflows during most of 2016 and increased foreign demand for higher rated GO and revenue bonds (given the limited supply of higher yielding taxable paper) have driven municipal bond yields notably tighter this year.

• The flatness of the US treasury yield curve has taken centre stage in the global bond markets over the past year, but the AAA municipal bond curve has been flattening at a much faster rate recently
• On June 29th, the Puerto Rico Oversight, Management and Economic Stability Act, or PROMESA was passed by the Senate and signed into law by President Obama
• Markit Parsing data indicates that, on average, three dealers made a market on Puerto Rico's 8.0% coupon general obligation bond maturing in 7/2035 every trading day this year. There were multiple instances when the bond price rallied shortly after the two-way market dealer depth increased to more than five dealers
• On July 18th, ISDA announced that the Commonwealth of Puerto Rico's recent failure to make the scheduled payment on their general obligation bond is being declared an event of default

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