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Muni bond fund outflows slowed this week, with investors withdrawing $746 million for the week ended Wednesday, down from $1.3 billion the week earlier. So there are signs that the muni bond fire sale is coming to an end.
To highlight this, the iShares National AMT-Free Muni Bond ETF, (MUB) sold at about 0.03 percent less than the value of its assets (NAV) as of Oct. 23, data compiled by Bloomberg shows. That’s down from a record 2.86 percent gap in June.
MUB has been trading at a discount to NAV since May, mirroring a drop in demand for municipal bonds caused by the Feds taper shenanigans and Detroits bankruptcy. The narrowing of the discount suggests that buyers will return to local debt in the next few months, according to Bart Mosley, co-president of Trident Municipal Research.
Municipal bonds along with Treasuries are benefiting from speculation that the partial U.S. government shutdown this month has slowed the the economy to such an extent that the Federal Reserve will have to extend its monthly bond-buying program well into next year.
Treasuries have so far benefited the most from this move, but municipal bonds are catching up.
Municipalities saw an increase in borrowing, which drove local bonds to the cheapest in almost two months against Treasuries, with yields on 10-year munis reaching about 111 percent of that on federal debt securities this week, says Brian Chappatta for Bloomberg. But the slowing of outflows and the widening of the yield ratio could now signal a buying opportunity for muni bond exchange traded funds.
Learn Bonds: – Muni Bonds: A case study of Detroit’s fiasco. – Lawrence Mayers takes a look at Detroit’s bankruptcy in detail, because it’s a great example of what investors should look for before and during an investment in a city’s muni bonds.
ETF Trends: – Muni bond ETFs look attractive compared to Treasuries. – After the U.S. shutdown scare, municipal bonds fell behind the rally in Treasuries. As a result, the widening yield ratio could now signal a buying opportunity for muni bond exchange traded funds.
ETF Trends: – Market vectors: Woe is munis? – I cannot help but feel that fixed income investors may currently be finding themselves in a hope-and-despair loop, reeling most recently from political brinkmanship over what may occur in January 2014: another round of brinkmanship and ultimately, the looming possibility of Federal Reserve tapering and higher interest rates.
The Economist: – Puerto Rico’s debt crisis. – Although investors are now less jittery about a possible default by the American Treasury, they are rightly still nervous about a drama unfolding in the market for state and local debt. Since May, yields on bonds issued by Puerto Rico, a self-governing American territory, have shot up to between 8% and 10%, despite their (barely) investment-grade rating and tax-exempt interest.
John M. Mason: – Bond market on track for record year! – My guess is that we will see the volume record broken this year for new high-grade corporate debt issues. This, of course, will mean that investors will be able to place higher yielding, high-grade corporate debt into their portfolios in 2014. The risk is that as interest rates proceed to higher levels … bond prices will decline. This is a tradeoff, however, that must be faced.
WSJ: – Low rates bring bond bonanza. – Highly rated issuers sold more than $12 billion of bonds Thursday, taking advantage of robust investor demand and the latest tumble in market interest rates to stock up on cash.
WSJ: – Treasury bonds boosted by U.S. data; Headed for weekly gain. – Demand for safe-harbor Treasury bonds perked up Friday as the latest U.S. data releases raised concerns over the economic growth and bolstered speculation the Federal Reserve would be in no rush to dial back bond buying.
InvestmentNews: – For near-term boost, go with high-yield fixed income. – With most signs pointing toward several more months of uninterrupted quantitative easing, it isn’t too late to jump tactically into the high-yield bond market for a near-term portfolio boost.
InvestmentNews: – Time to ditch high-yield bonds for stocks. – High-yield-bond funds have been among the best performers since the financial crisis, but Mike Roberge, chief investment officer at MFS Investment Management, thinks that it is time for investors to move their high-yield allocation into stocks.
Morgan Myrmo: – Building a solid REIT portfolio for stable income now. – There are several types of equity REITs that are suitable for income investors. When looking at basic parameters such as dividend history, forward yield and company size, the investor is able to conclude the likelihood of dividend safety and the potential for dividend growth.
Benzinga: – EM local debt ETFs offer opportunity. – Equity-based emerging markets ETFs have languished through some rough performances in 2013, but their bond counterparts have tumbled mightily as well.
Emerging Markets Daily: – Capital outflow from EM bond funds quickened, hard currency bonds pressured the most. – For the week ending October 23, emerging markets bond funds experienced $1.6 billion of outflows (0.7% asset under management AUM), equivalent to the total outflow in the past four weeks, according to data provided by EPFR Global and Barclays.
ETF Trends: – PIMCO’s Hodge talks active ETFs. – PIMCO Chief Operating Officer Douglas Hodge talked with ETF Trends Editor Tom Lydon at the Morningstar ETF Invest Conference in Chicago earlier this month about PIMCO’s foray into ETFs and where actively managed ETFs could be headed from here.
AL.com: – Are my bonds safe? – When people talk about stocks and bonds, many people intuitively associate “safety” with bonds and “risky” with stocks. While it’s certainly true that, in general, stocks are more volatile than bonds, bonds can be pretty risky under certain circumstances. I’ve found that a lot of people also find bonds to be confusing to understand. Let’s start with a few bond basics.
Morningstar: – Seeking direction in bonds? Let your time horizon lead the way. – True, a spike upward in rates will tend to lead to short-term losses in high-quality bonds of all maturities. Even ultrashort bond funds. But over time, that higher yield also flows through to the investor, eventually making up for the near-term drop in principal value.
Why does 2.50% UST 10 yr feel so different than June 21? Oversold then? Overbought now?
— Fixedology (@Fixedology) October 25, 2013
Gross: By the way, I should spend more TIME like Bill Gates too — we all should. He and Melinda are great paragons.
— PIMCO (@PIMCO) October 25, 2013
RBC's Chris Mauro says #muni funds "can't compete with equity juggernaut" as Lipper shows 22nd week of outflows.
— Brian Chappatta (@BChappatta) October 25, 2013