California lawmakers and labor unions struck a deal to raise the state minimum wage to $15/hour. The wage rises from $10 to $10.50 in 2017, to $11 in 2018, followed by $1 annual increases through 2022. This pace exceeds the plan in NY, where many areas will not reach $15 for several years. Governor Brown warned of a $4 billion annual increase in state budget expenses if public-sector health-care workers receive $15/hour.
In San Bernardino’s bankruptcy case, bondholders and insurers agreed to a 40% recovery rate, a significant haircut but well above the 1% offered in the debtors’ initial plan of reorganization. As in Stockton and Detroit, the plan leaves pensions virtually unscathed, illustrating that pensions are faring far better than other creditors under Chapter 9. This reinforces the view that bondholders need to be extremely cautious dealing with distressed municipalities.
By the Numbers
The S&P Municipal Bond Index returned 0.42% in March and 1.63% YTD. While price performance was slightly negative, the income (or carry) component of performance led munis to their ninth consecutive month of positive returns. High yield outpaced the broader muni index for the month, with strong performance from the tobacco sector (2.98%) more than offsetting negative returns from Puerto Rico. Muni-to-Treasury ratios are compelling across all maturities, making for an attractive income proposition.
Peter Hayes is BlackRock's head of the municipal bonds group.
James Schwartz is BlackRock's head of municipal credit research.
Sean Carney is BlackRock's head of municipal strategy.