Tobacco debt as an asset class has been a rockstar so far into 2014, the S&P Municipal Bond Tobacco Index has returned 10.31%YTD. The party could be over, however, as the weighted average price of bonds in the index has dropped (7.6%) in July as seen below. The picture is not all doom and gloom for tobacco debt as the total return of the index is only down (1.4%) for the month. Remember that the revenue used to repay this debt only comes from American tobacco use, so an increase in trends like SE Asia smoking habits or U.S. E-cigarettes does not generate extra cash flow for the tobacco settlement bonds.
For a broader insight into the world of fixed income and a look into the upcoming events signaling the pace of our economic recovery, please refer to a recent post by my colleague, Kevin Horan.
This article was written by Tyler Cling, senior manager, fixed income indices, S&P Dow Jones Indices.
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