Friday, November 19, 2010

More thoughts on the muni market

My previous post on the muni market needed some more information.  (Ready, Fire, Aim)
Bond Girl over at self-evident.org highlights some recent events which most likely were the catalyst for the most recent downdraft in the muni market.

The pending expiration of the Build America Bond (BAB) program has pulled supply forward, and this is going to seesaw over the next several weeks.  Since the BAB program was initiated, most issuers have structured their new issues with the sense that they will go to either the tax-exempt or taxable market, whichever is more advantageous at the time. . . 
What is going on now is that muni issuers are scrambling to get deals done to take advantage of the program before it expires, and this is pulling the number of new issues that would ordinarily be coming to market forward.  So the looming expiration of the BAB program is creating the very conditions it was created to alleviate.
I suggest reading the entire article for some additional info on the current situation. As I mentioned in my previous post  it is unusual for muni bonds to trade at a higher yield to treasuries as the muni's have a tax benefit.  The current situation is unusual and bears further attention.

2 comments:

  1. thanks greg, its one of the shoes to fall in comng months no doubt.

    boatman

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  2. Actually after this wipout in muni bond prices I'm starting to pay a lot more attention. I don't see a positive catalyst for the munis but eventually there will be one. Someday I'll be a buyer. Just not now.

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