|Tobacco bonds, which are sold by state governments and are therefore tax-exempt and considered part of the municipal bond market, saw an average gain of 10% in June. However, according to an article by the Wall Street Journal, many mutual funds and pension funds that have municipal bond holdings weren’t able to cash in, as they were forced to sell their holdings back in November 2010 after a downgrade by S&P made the bonds noninvestment-grade debt. |
The big winners then, were hedge funds such as Brigade Capital, GoldenTree Asset Management, and Venor Capital Management. These hedge funds managed to snap up the bonds for cents on the dollar back in November, some of which have risen over 60% since. The June rally was a result of a pending settlement between tobacco companies and states that could see up to $5 billion paid out to bondholders.