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rffrydr
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HenryTo
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 Posted: Mon Jul 06, 2009 8:37 pm Post subject: |
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Morningstar on the potential dislocations in the municipal bond market - and by extension, the P&C insurers:
http://news.morningstar.com/articlenet/article.aspx?id=297660
| Quote: | | The arsenal of stimulus programs seemingly has stemmed the tide of capital market disasters and some think "green shoots" are taking root. But a new problem, perhaps even more daunting, is popping up: Municipalities across the U.S. have deep budgetary problems and the chance of default on their bonds grows every day. Recent estimates put the State of California budget deficit in excess of $24 billion, about a quarter of the size of the total budget, a shortfall that must be addressed in the next 30 days. What's more, while California has become the poster child for the problem, many other state and local governments are in the same fix. Some estimates put the total shortfall for all state budgets at almost $170 billion. |
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Sucinimod
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rffrydr
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rffrydr
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rffrydr
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rffrydr
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| Posted: Sat Mar 28, 2009 8:26 pm Post subject: |
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What possible reason for posting this link here?
http://online.wsj.com/article/SB123811365190053401.html
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Last edited by rffrydr on Fri May 15, 2009 11:33 pm; edited 1 time in total |
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rffrydr
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rffrydr
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rffrydr
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| Posted: Tue Feb 17, 2009 12:07 am Post subject: |
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Liscio report courtesy this week's Mauldin.
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rffrydr
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rffrydr
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rffrydr
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rffrydr
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| Posted: Tue Sep 23, 2008 9:21 pm Post subject: |
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In defense of munis--which I still wouldn't buy but have noticed plenty of 30+ percentage leveraged CEFs still out there swinging (including PIMCO). This way you can get a little more out of that Zippo lighter:
| Quote: | Muni Bonds Are Cheap and Safe
By Tom Graff
RealMoney Contributor
9/23/2008 9:28 AM EDT
Click here for more stories by Tom Graff Try Jim Cramer's Action Alerts PLUS
CLICK HERE NOW
Investors demand safety in a market like this. But what are your options? Short-term Treasury yields remain below 1%. Longer-term Treasury bonds yield more, but with good reason. The cost of the Treasury-led bailout of the financial system will be borne by Treasury bond buyers. And if the dollar continues to weaken, that will also weigh on long-term Treasury prices.
Municipal bonds are a much better choice for safety-conscious investors. Right now, 10-year tax-exempt municipals are generally available with yields in the 4% area, slightly more nominal yield than Treasury bonds. Historically, the ratio of muni yields to Treasuries has been about 80%.
Why are municipals currently so cheap? There are a few reasons. Retail investors have been redeeming mutual fund shares -- in part due to panic, in part due to a desire to have more control over their investments, and in part due to legitimate concerns over municipal credit quality. Mutual funds have no choice but to sell in the face of these resumptions, regardless of value.
In "normal" times, dealer desks are the liquidity providers in the municipal market. Given that large mutual funds are valued customers, dealer firms are usually anxious to provide good bids. But dealers are currently hoarding cash themselves, only bidding bonds when they have another customer in hand to buy the bonds. Forced sellers + weak market-makers = significant price declines.
But these price declines create opportunities for those who can buy.
Consider that municipal yields are typically about 80% of Treasury yields. That implies that "fair" value for a 10-year municipal is around 3.12%. If prices were to revert to their historic norms, municipals would enjoy a 7% price improvement. On top of this, tax rates are very likely to rise, even if McCain wins the election. In the long run, the bailout of Wall Street will cost taxpayers, and taxes will consequently have to rise. That will be very supportive of municipal bonds. This gives one good reason to expect that municipal bonds can move toward historic averages in the near term.
Compare this with corporate bonds. Corporate bonds are clearly "cheap" compared with historic norms, but are we likely to revisit those norms anytime soon? Even giving a very favorable view of the Treasury plan, the real economy remains shaky. And even after the economy eventually recovers, I believe we should expect corporate bond spreads to remain above average for an extended period. Maybe corporate bond prices will improve in the near term, but it remains a risky bet.
In municipals, it's relatively easy to find bonds relatively unexposed to the real estate markets. Sure, tax collections generally fall during periods of weaker economics. But most states collect little, if any, property taxes. Beyond that, many municipal issuers -- including hospitals, water and sewer systems, universities, mass transportation, etc. -- are not particularly exposed to the economy in general. There aren't a lot of corporate bonds for which one can make the same claim. |
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