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BBN - Muni Funds Under Pressure From TOB Deleveraging
BlackRock Taxable Municipal Bond Trust of Beneficial Interest
This article uses market data as of Monday close.
Here we go again. In a stark repeat of the financial crisis era events, a number of municipal funds have begun to deleverage. At focus is the unwinding of tender option bonds - a financial structure that allows municipal funds to raise leverage and increase fund payouts. According to Bloomberg, about 75 TOBs with $1.2bn of bonds liquidated last week.
This unwind wave was triggered in large part by the spike in the SIFMA index to 5.2% from below 1%. This index tracks the rate paid