Riskiest Municipal Tobacco Bonds Hit by Smoking Declines

The riskiest tobacco bonds have slid this year to the second-worst performer in high-yield municipal debt as smoking declines at a faster rate than assumed under the securities’ structure.

The debt, backed by settlement payments states receive from tobacco companies, has declined 4.1%, compared with a 2.6% gain for the high-yield tax-exempt market, according to data compiled by Bloomberg. Only high-yield transportation bonds, hit by the struggles of Florida’s Brightline private railroad, have fared worse.

“There’s uncertainty about cash flows, there’s consumption declines, and I think the buyer base is just shrinking,” said Jerry Solomon, a ...