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Last week Ben Bernanke gave the Municipal Bond market a gift when he postponed tapering back the Fed’s bond buying program. Municipal bonds have been on edge ever since the Fed first mentioned the possibility of scaling back bond purchases in June.
Any sort of tapering announcement would have meant the end of the greatest bull run municipal bonds have seen in decades. But the announcement was merely postponed, meaning any resurgence of municipal bonds may be short lived.
“It’s been an eventful half decade for the famously sleepy muni market: several high profile bankruptcies and defaults, the collapse of the municipal bond insurance industry, and heightened awareness of the threat that governments’ retirement benefit obligations pose to their fiscal stability.
But whatever negative effect any these developments has had (none could be thought to have had a positive effect), it has been easily overwhelmed by quantitative easing.”
To highlight the fact, earlier this month, both Moody’s Investment Services and Kroll Bond Ratings released reports that took a bearish position, predicting tougher times ahead for the municipal bond market.
No one is implying we’re going to see a Meredith Whitney style implosion of the muni market, but both reports suggest investing in municipal bonds could become a riskier proposition in two ways: Bonds could default more often and/or recovery rates, when defaults do occur, could be lower.
Cate Long: – Public pension assets reach highest-ever level. – The pension doomsayers, who claim that pensions are direly underfunded and losing ground, may be surprised to hear that public pension assets grew to their highest-ever level for the last fiscal year.
Bloomberg: – Munis extend best rally in 20 months on Fed as supply drops. – The U.S. municipal market is heading for its biggest monthly rally since January 2012 as dwindling supply helps extend gains following the Federal Reserve’s decision to continue the pace of its bond buying.
Bloomberg: – New York City economy matters more than next mayor: Muni credit. – New York’s borrowing costs have fallen to the lowest this year even as the next mayor faces a struggle to negotiate expired labor contracts that may cost billions of dollars.
Morningstar: – Our outlook for the municipal markets. – More than any time since the Depression the municipal market has become a credit market.
Bloomberg: – Muni market shrank to $3.72 trillion in Q2 as households unload. – The market for U.S. state and city debt shrank to about $3.72 trillion last quarter as households cut their holdings to the smallest in more than six years, according to the Federal Reserve.
ValueWalk: – Advice for retail investors allocating money to bonds. – David Merkel explains the difference between, tax-free and taxable bonds and describes some of the strategies that you can use to purchase bonds, and what percentage of your portfolio typically should be in bond funds?
WSJ: – Treasury bonds break three-day winning streak. – U.S. Treasury bonds took a break after a three-day price rally as the market braces itself for new debt sales. The Treasury Department is scheduled to sell $35 billion in five-year notes at 1 p.m. EDT Wednesday, the second leg of this week’s $97 billion new note auctions. A sale of $29 billion in seven-year notes on Thursday will wrap up the week’s debt offerings.
WSJ: – Two Fed officials stay put on bond buys. – Two Federal Reserve officials sounded doubtful about cutting back on the central bank’s $85 billion-a-month bond-buying program at their next policy meeting next month, less than a week after surprising markets with a decision to keep the easy money flowing full bore.
FT: – Companies rush to sell long-term debt. – A rush of companies selling U.S. benchmark bonds to take advantage of lower interest rates on Wednesday was set to crown September as a record month for investment grade debt issuance.
Reuters: – Forward Calendar – U.S. corporate bond new issues. – A list of upcoming high-grade and high-yield corporate bond offerings in the United States. The information was gathered from Thomson Reuters U.S. new issues team, and other market sources.
Kiplinger: – Loomis Sayles looks for bargains in the junk pile. – Anticipating that interest rates will resume their climb, Loomis Sayles managers are favoring high-yield bonds over Treasuries.
Income Investing: – If bond market sell-off is over, munis & emerging markets attractive. – Anthony Valeri of LPL Financial sees municipal bonds and emerging market debt as winners following the Fed’s decision not to curtail asset purchases that boost the economy.
Morgan Myrmo: – Searching for yield with Bill Gross. – Investing like Bill Gross, Morgan Myrmo looks at PIMCO’s investment for clues on how to build a portfolio that mirrors Gross’s performance.
IndexUniverse: – Fixed income & ETFs: A toxic relationship? – ETFs have revolutionized investing, and given investors access to all sorts of interesting new asset classes—currencies, commodities, alternatives. In the outer corners of the market, skepticism toward these products runs high. Do leveraged ETFs really work? Should investors have access to VIX ETNs? Investor concerns abound.
Bloomberg: – BlackRock’s Thiel sees negative fixed-income returns for years. – Investors face losses from fixed-income securities “for the next couple of years,” according to BlackRock Inc. (BLK), the world’s biggest money manager.
— PIMCO (@PIMCO) September 25, 2013
… but banks' investments in munis increased in Q2, as did those for property-casualty- and life-insurance firms.
— James Ramage (@JamesRamage_BB) September 25, 2013
#Muni new issue supply expected to pick up moving into October.
— Fixedology (@Fixedology) September 25, 2013