It’s March 18, and he’s staying calm and optimistic, using
cheery phrases like “V-shaped recovery” and “major snapback
potential.” He says he’s still “gung-ho” about the mall and the train,
convinced that such a rapid deterioration in the market—faster than
the 2008 financial crisis—augurs an equally speedy rebound. “This
is not going to be, I don’t think, a multiyear health crisis,” says Miller,
who turns 53 in April. “This is going to be a multimonth health crisis.
I don’t think it’s going to be a multiyear economic crisis either.”
But by the end of March, it was still unclear whether the
pandemonium could be compared with that of previous downturns.
Analysts at Municipal Market Analytics, an independent research
firm that tracks municipal distress, said in a March 20 report that
more municipal borrowers will default or otherwise fail to honor
their agreements with bondholders. And they said those problems
will be centered in the riskiest parts of the market—the areas in
which Miller’s fund dominates. Then, in the last week of March, as
Congress was on the verge of enacting a $2 trillion economic
stimulus, the crash reversed as abruptly as it began, with even
junk bonds joining in the rally.
If the $3.9 trillion municipal bond market were an ocean, the
high-yield section would be the shadowy corner where the sharks
gather. And there are only two great whites there: Nuveen, where
Miller oversees the business, and Invesco Ltd., which bought
OppenheimerFunds in 2018. The two companies comprise more
than a third of the $111 billion high-yield municipal bond mutual
fund universe tracked by Bloomberg. When they suffer, the rest
of the market does, too. The high-yield municipal funds run by the
two companies were among those seeing the steepest losses in
March compared with their peers.
To some, it seemed like the high-yield municipal bond market
was poised for a fall even before the Covid-19 outbreak. When
investors were flooding the market with cash, Miller and hisHigh-Yield Munis
Turbulence Throws Nuveen’s
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By DANIELLE MORAN and AMANDA ALBRIGHT
PHOTOGRAPH BY LUCY HEWETT
FOR MORE THAN two decades, John Miller helped to build the high-
yield municipal bond market. In two weeks in early March, he
watched it collapse.
The star fund manager at muni giant Nuveen is famous for
the power he wields in the market—and for making bets that other
investors shy away from. His fund made wildly successful wagers
in the U.S., plunging into the riskiest crevices of state and local
government debt as well as into companies and ventures that
weren’t easily recognizable as municipal debt. Even when the
market was climbing to records earlier this year, Miller’s risk
appetite exceeded that of some of his peers.
Then the deadly new coronavirus shut down vast swaths of
the country. Many of the projects he financed were hit. The
American Dream megamall in New Jersey was shuttered just as it
was about to open. Virgin Trains USA’s unprofitable high-speed
Florida railroad curtailed service as tourists disappeared overnight.
In just 10 trading days, yields on benchmark municipal bonds
jumped more than 200 basis points, prompting the Federal Reserve
to take unprecedented action to support the market.
Miller’s fund plunged, its assets diving to $19.3 billion on
March 26, from $25 billion at the end of February. Having been one
of the best performers in the industry, it became one of the very
worst. Investors pulled $11.3 billion from high-yield municipal bond
mutual funds in the three weeks ended March 25, according to Refinitiv
Lipper US Fund Flows data. On March 19—with prices plunging, tying
a record for the biggest one-day rout in market history—Nuveen alone
tried to unload more than $700 million in bonds.
Nonetheless, Miller seems prepared. “This has been a move
without any concrete financial data because it’s happened so
quickly,” he says, sitting on the near-empty trading floor of Nuveen’s
downtown Chicago office. His phone has been ringing so incessantly
that he has to pause when the battery in his headset dies.
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