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lmrhoades
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 Posted: Thu Feb 14, 2008 6:58 am Post subject: Municipal Bond Market |
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Henry and others
Is there a big problem with the muni bond market. On cnbc this morning they were talking about it as if it could lose big money. I know bill gross is investing big into the muni bond market and it's done well this year thus far.
Is there a problem that you know of or is it just continued speculation?
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rffrydr
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| Posted: Tue Jun 22, 2010 1:28 pm Post subject: |
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Tom Graff
Municipal closed-end funds
6/22/2010 3:09 PM EDT
| Quote: | Interesting to note that the average discount on investment-grade muni funds is now... positive. Meaning that the average fund is trading at a slight premium to NAV. This has happened before but it is very rare. Normally closed-end funds trade at a 2-4% discount to NAV.
Normally I'd say a rising price/NAV ratio is a positive for municipal bonds generally. If retail is buying up closed-end funds, no reason why they wouldn't also be buying cash munis as well. Plus the muni/Treasury yield ratio is very near 100% in the 10-year range.
Still, I'm not excited about munis at these levels. It will take a few more weeks for retail investors to get comfortable with the new rate regime. Plus if we get any kind of stock market sell-off, Treasuries will run and munis will lag badly. Especially the credit-risky states (CA, IL, MI, NY). You can still wait to put cash to work in munis. |
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rffrydr
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| Posted: Fri Jun 18, 2010 3:13 pm Post subject: |
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Tom Graff
Illinois...
6/18/2010 3:21 PM EDT
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Some trading in the new Illinois 7.1% 2035 bonds above par. Someone is trying to rip off retail customers by charging $103. This is criminal. At least as recently as noon the bonds were still in syndicate, meaning they should have been freely available at $100. Of course, stuff like this goes on all the time in the muni market. Buyer beware. |
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rffrydr
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| Posted: Mon Jun 14, 2010 3:38 pm Post subject: |
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Politics is not in the price--but should be:
Tom Graff
Munis in crisis... again
6/14/2010 3:20 PM EDT
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The Wall Street Journal ran a piece today on municipal budget deficits. Those that have been reading Bondlife in recent weeks know that I fully expect some municipal defaults in the next couple years. That being said, it is important to understand what is and what isn't really a budget shortfall.
Pull up Google and type in your home state, the word "budget" and the year 2007. I promise you'll quickly find a story from a local newspaper about a large projected budget shortfall. Maryland was facing a $1.5 billion shortfall that year, and there were many stories about how dangerous the budget situation had become.
The reality is that municipal budgets often start out assuming large increases in spending for various departments. This results in the budget seeming to be out of balance to start. Every one knows they will be cutting the budget from the outset.
This is why I object to pieces like the WSJ's from today that discuss future budget problems without giving some background about how the budget is nearly always out of balance. It is much more of a poltical game as it is anything economic. Again, not saying states don't face real problems. Just saying you need to understand the difference between the
real problem and the invented one. |
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rffrydr
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| Posted: Sat Jun 12, 2010 9:11 am Post subject: |
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Echoes of Argentina? New York pensions sleight-of-hand gets the vigilantes riled up:
http://www.nytimes.com/2010/06/12/nyregion/12pension.html?hp
What's the real moral here? Government debt is not the same as corporate debt which is not the same as personal debt--which is not the same as "too big to fail" debt. Like all your investments, you have to be able to discriminate.
I bet this works. --or, at least follows the Buffett model.
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rffrydr
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| Posted: Sun Jun 06, 2010 5:47 am Post subject: |
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Tom Graff
6/04
Municipals: Drop Dead
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In testifying about the poor performance of the ratings agencies, Warren Buffet discussed states getting AAA ratings. He said that with the U.S. government behind them, they deserve AAA. Otherwise, they might deserve something else.
Here is my take on ratings and munis: A municipality's greatest asset is its taxing power. If one did any sort of classic balance sheet analysis on a municipality and judged it based on tangible assets, they would all seem insolvent. But how do you value their legal power to seize the incomes of the citizenry?
You would base it on how much tolerance the citizens had for higher taxes before they left the municipal district (be it city, county, state, etc.). That would be a function of how unique the geography of the area is, how strong job growth is, how vibrant the local economy is and so forth. For example, New York City happens to be the center of several major U.S. industries: finance, advertising and television, to name a few. New York will always attract young wage earners looking to make it in these industries. California has a very attractive climate and is a center of technological innovation. Young wage earners looking to make it in Silicon Valley are attracted to California. Florida has a strong tourism business and continues to attract retirees from all over the East Coast and Midwest. Washington, D.C., will always be the center of U.S. politics and all the ancillary businesses that go with it.
These are important factors when considering a municipal credit. It is often said that New Yorkers pay much more in taxes than in other areas, but the reality is that New Yorkers are willing to put up with somewhat higher taxes because of certain advantages of living in New York. It is a fallacy to look at the tax rates in New York vs., say, Pittsburgh and conclude that New Yorkers just can't be taxed more. People living in New York are much more likely to stay in New York, even in the face of higher taxes. By contrast, Pittsburgh may not be able to raise taxes much at all without suffering substantial population losses.
This isn't to say that New York can't go under. We know New York almost did go under in the 1970s. My point here is to consider what a city or state actually is and not just what is on its balance sheet when considering a muni credit. |
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HenryTo
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rffrydr
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| Posted: Mon Mar 08, 2010 4:49 pm Post subject: |
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The New Normal:
| Quote: | Tom Graff
Municipals Rally as Treasuries Sell Off
3/8/2010 4:09 PM EST
Yields on AAA-rated were unchanged to 1-2 better today, according to MMD. Friday as the Treasury market was selling off severely, muni rates were completely unchanged. So after two days when the 10-year Treasury rose 11 basis points, munis are unchanged.
Last year at this time, with muni rates well in excess of 100% of Treasury rates, many were talking about a "new normal." Now munis are near all-time tights in terms of Treasury ratios. There is no new normal. Just people looking to invest their money at a tax-exempt rate in a world where tax rates are going up. We remain short- and long-term bullish on munis. |
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rffrydr
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| Posted: Sat Feb 27, 2010 10:37 am Post subject: |
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Tom Graff:
| Quote: | Municipals
While Treasury yields were rallying this week, muni prices barely budged. Ten-year Treasuries fell 14 basis points in yield, but 10-year munis declined by only 4 basis points, or about 1 point worth of underperformance in price terms. Our momentum indicators still look better for municipals, so on the intermediate and long end, I expect munis to outperform in the short term.
On the front end, munis have gotten quite expensive. The three-year Treasury is currently 1.37%. Three-year municipals are yielding more like 0.70% on the offer side. So if an investor in the 35% federal tax bracket buys the three-year Treasury, the after-tax yield is 1.37% times (1 minus 35%), or 0.89%. Comfortably better than the muni. Bear in mind that Treasury bonds are state-tax exempt.
Even better is to buy Federal Farm Credit or Federal Home Loan Bank bonds, which yield about 20 basis points better than Treasuries. Both are state-tax-exempt in most states. Perhaps more importantly, this is the second time the muni/Treasury ratio in the short end got this low in the last six months. The previous time this occurred, the ratio quickly reverted into the 70% range, meaning that by buying the taxable bond, you avoid the likely price depreciation in the short-term municipal. We have moved out of virtually all our tax-exempt positions in this part of the curve. |
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HenryTo
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| Posted: Sun Nov 22, 2009 4:57 am Post subject: |
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In the meantime, municipal bond yields continue to fall as the issue calendar slows down going into Thanksgiving and Christmas:
http://www.bloomberg.com/apps/news?pid=20601103&sid=algU5ps1rVYU
I agree that states' and local budgets are still very strained, and that we could see more liquidity problems sometime next year. |
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rffrydr
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| Posted: Thu Nov 12, 2009 1:55 pm Post subject: |
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Tim Melvin
Muni Market
| Quote: | 11/12/2009 2:40 PM EST
I just read a fascinating Bloomberg article that does not bode well for the muni market. It seems big institutional such as Allstate, Guardian and evens the Tisch brothers over ot Lowes are actively selling municipal bonds. There are very real concerns about state and municipal budgets and after the rally this year they are simply getting out of the muni market. Even as the pros were selling individuals were pumping billions into tax exempt bond funds in a desperate search for yield. According to a recent Morningstar report over $62 billion has gone into tax exempt mutual funds.
I have seen this before in many asset classes over the years. It never ends happily for retail |
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=akHAhR0IdEEM
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rffrydr
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| Posted: Wed Oct 28, 2009 11:49 am Post subject: |
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Maybe a stealth bubble down there last year at 150 crude. Valero's taxes really show the vulnerability downstream--where the finance rubber has to hit the road.
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HenryTo
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| Posted: Wed Oct 28, 2009 9:32 am Post subject: |
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| rffrydr, unfortunately, I do not have any substantive knowledge of how the local government works in Houston. For all the talk about California's finances - at least the state had a firm grasp of its finances on a real-time basis and was sufficiently nimble and efficient to issue IOUs to keep paying its employees. I don't think my UCLA degrees will get very far in Houston. |
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rffrydr
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rffrydr
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| Posted: Mon Oct 19, 2009 6:44 am Post subject: |
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You'd expect to hear more of this, but the undoing of Bimingham AL with all of its creative flourishes may prove the exception even as it proves the rule: complexity in financial products invites dependence--invites corruption.
http://www.bloomberg.com/apps/news?pid=20601109&sid=a6QpSf.s4NaA
Still standing away from muni debt.
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rffrydr
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| Posted: Wed Jul 29, 2009 8:06 am Post subject: |
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Detroit on the brink....but look for them to pull out of the tailspin:
Detroit
Published: July 29 2009 09:31 | Last updated: July 29 2009 12:11
The words “Detroit” and “bankruptcy” carry associations with carmakers. But Motown itself might take that route if Mayor Dave Bing cannot secure major concessions from unionised employees. Chapter 9 bankruptcies, which cover US municipalities, are rare and usually involve small towns. Other big cities like New York, Cleveland and Philadelphia have approached the brink in the past and pulled back – a reflection of how disadvantageous such filings have been. Before Orange County California’s investment losses made it the largest-ever Chapter 9, there were 362 filings in 60 years for a cumulative $217m. So a Detroit bankruptcy would be a whopper and a disturbing precedent.
It is easy to dismiss Detroit as an outlier given its considerable woes. One of the most crime-ridden cities in America, a mayoral candidate quipped upon hearing murders had dropped that “there just isn’t anyone left to kill.” Indeed, its population has fallen by half, or nearly 1m, since 1950; the median house can also be bought for just $7,500. Unemployment is two and a half times the national average, and top city officials have faced criminal charges recently.
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