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MMA IN THE NEWS / SPECIAL REPORTS
California May Pay More Than in March at $1.5 Billion Bond Sale
(SPECIAL: pub. November 10, 2009;)
Borrowing costs for state and local governments that pay so-called spreads above benchmark tax-exempt yields reached a two-month high as California state-level debt issuers borrowed or refinanced more than $10.5 billion since Oct. 5.
"With California flooding the new issue market with higher-yielding paper, spread paper is cheapening to stay competitive,” Matt Fabian, managing director and senior analyst at Concord, Massachusetts-based independent research firm Municipal Market Advisors, said in a report yesterday.
Bloomberg.com
Bond Debacle Sinks Jefferson County
(SPECIAL: pub. November 8, 2009;)
"At some point they will be able to get market access back," says Matt Fabian, a managing director at Municipal Market Advisors in Concord, Mass. "But it's just going to be much more expensive for them. Jefferson County is the scariest situation in the market today." ?
Fabian worries that Jefferson County's method of solving its problem could set a precedent for other bond issuers. While investors are prepared to risk default on riskier bonds, such as land speculation district bonds in Florida that default frequently, Jefferson County's sewer bonds are considered to be "safe sector credits" that yield a steady and supposedly worry-free return. Should Jefferson County declare bankruptcy or make an arrangement where bondholders get cents on the dollar, analysts fret that other municipalities facing similar problems—though likely on a lesser scale—would follow suit and either declare bankruptcy or make arrangements with creditors that would yield skimpy payments. "How Jefferson County got into its situation is unique," says Fabian. "But how it gets out could set an example for other issuers to follow, and that's the fear for investors."
BusinessWeek.com
California Boosts Build America Bond Sale 21% to $908 Million
(SPECIAL: pub. November 3, 2009;)
“It’s a good sign of investor demand generally for the state,” said Matt Fabian, senior analyst and managing director for Concord, Massachusetts-based independent research firm Municipal Market Advisors. “Despite all of its credit and supply issues, there’s at least one buyer” with a “sizeable” appetite for its bonds, he said.
Bloomberg.com
Harvard’s Bet on Interest Rate Rise Cost $500 Million to Exit
(SPECIAL: pub. October 17, 2009;)
Harvard paid “a large termination fee, but within the range that we’ve heard about over the last year,” Matt Fabian, the senior analyst and managing director of Municipal Market Advisors in Westport, Connecticut, said in an e-mail. “There is a reason why, regardless of the issuer’s sophistication, there should be limits to their exposure to derivatives and variable rate bonds.”
Bloomberg.com
Washington to Refinance Less as Muni Yields Jump to 7-Week High
(SPECIAL: pub. October 14, 2009;)
“The market has been slowing down, price gains have slowed down and trading volumes are getting thinner and thinner,” said Matt Fabian, the senior analyst and managing director of Municipal Market Advisors in Westport, Connecticut.
Bloomberg.com
California municipal bond sale falls short of fundraising goal
(SPECIAL: pub. October 9, 2009;)
After $4.5 billion in general obligation bonds fails to attract enough orders to raise the full amount, the state cut the total size of the deal by 8% to $4.14 billion, Treasurer Bill Lockyer says.
Suddenly, "people are punting bonds," said Matt Fabian, senior analyst Municipal Market Advisors in Westport, Conn. With investors insisting on higher yields on bonds in general before they'd buy, California was bound to be squeezed, analysts said. That also gave some investors an excuse to focus on the state's still-troubled fiscal situation.
LA Times
Foreign Buyers Added Most to Munis as Build America Deals Began
(SPECIAL: pub. September 17, 2009;)
Foreign buyers boosted holdings of U.S. municipal securities by a larger percentage than any other investor group in the second quarter as issuers started selling taxable Build America Bonds, offering yields higher than tax- exempt debt.
Holdings of long-term municipal securities in “the rest of the world” rose $5.6 billion, or 14 percent, to $45.6 billion during the April-through-June period, the highest in a year, according to Federal Reserve data released today.
“That has to be BABs,” Matt Fabian, managing director of independent research firm Municipal Market Advisors said in an interview from Westport, Connecticut.
Bloomberg.com
State revenue anticipation notes to yield less
(SPECIAL: pub. September 17, 2009;)
Early next week, California will sell $8.8 billion in tax-exempt revenue anticipation notes, but investors hoping for a repeat of last year's juicy yields - 3.75 and 4.25 percent - are likely to be disappointed.
On one hand, with the average tax-free money market fund yielding less than 0.1 percent, funds "are absolutely starved" for yield, says Matt Fabian, managing director with Municipal Market Advisors, a research firm.
San Francisco Chronicle
Municipal Credit Spreads Narrow to Tightest Since October 2008
(SPECIAL: pub. September 4, 2009;)
Yields on general obligation bonds due in 20 years tracked by the weekly Bond Buyer 20 index dropped 16 basis points this week to 4.37 percent yesterday, the lowest since February 2008. Municipal Market Advisors’ daily gauges of AAA debt were little changed today.
Fixed-rate municipal borrowing fell to about $2.8 billion before the Labor Day holiday weekend, the lowest since the week that ended July 4, Independence Day, Bloomberg data show.
Bloomberg
Bonds: Is Now the Time to Buy Long-Term Munis?
(SPECIAL: pub. August 26, 2009;)
Yields on tax-exempt bonds maturing in less than 10 years fell to a six-year low during the week of Aug. 16. With 30-year municipal bonds offering yields near 5%—an astonishing four percentage points higher than two-year muni bonds—yield-hungry municipal bond investors are shifting money into riskier, longer-term municipal bonds, according to Municipal Market Advisors, which publishes a newsletter for municipal bond investors.
Business Week
A 'win-win' deal for Stamford
(SPECIAL: pub. August 25, 2009;)
With the sea change in the municipal market, Fabian (from Municipal Market Advisors) said the city is lucky that the project has found a way to move forward without issuing bonds.
"The municipal market may never return where we are doing projects like this," he said. Moreover, many TIF districts that have issued bonds have gone into default. "The investors are not there, but the ones who are there are much more conscious because of the defaults across the country," he said.
Greenwich Time
Local difficulties
(SPECIAL: pub. August 24, 2009;)
Matt Fabian, managing director of Municipal Market Advisors, a Massachusetts research firm, puts it bluntly: "The municipal bond industry is the backwater of the financial markets because it was designed that way."
Although with $2,700bn (£1,640bn, €1,880bn) of bonds outstanding it had become a decidedly big backwater, for years the market where US state and local governments raise money for everything from roads and sewers to schools and sports stadiums operated with hardly a hitch. Default rates were low, many prices barely moved and bonds of some of the 50,000 issuers did not trade at all.
Financial Times
Hunger for yield could help California in looming debt sale
(SPECIAL: pub. August 11, 2009;)
The rally in California munis has been so strong that some analysts say yields now are too low on shorter-term bonds to warrant locking up money. "The value is out of California debt," said Thomas Doe, head of market research firm Municipal Market Advisors in Concord, Mass.
But yield-hungry investors should soon have another option from the state: a debt offering that will bridge the gap between near-term spending needs and future tax revenue.
Los Angeles Times
Muni bonds lose ratings after Ambac junked
(SPECIAL: pub. July 31, 2009;)
Thousands of municipal bonds have lost their ratings and others have been downgraded after Standard & Poor’s this week stripped bond insurer Ambac Assurance of its investment-grade ratings.
“It is not a catalyst for a major market shift, but it will reduce the valuation and the liquidity which will spook retail investors,” said Matt Fabian, managing director at Municipal Market Advisors. Wealthy US individuals are big holders of muni bonds because the interest income is exempt from some taxes.
Financial Times
Bond analyst skeptical of California's new budget
(SPECIAL: pub. July 28, 2009;)
A bond analyst was skeptical Monday about California's revised budget, saying it was filled with accounting tricks that would do little to improve the state's poor credit rating.
In addition, lenders may not be satisfied with California's latest spending plan, which combines $15 billion in cuts to education, prisons, parks and other aspects of state government with accounting maneuvers and borrowing to close a $26 billion deficit.
The state already has the lowest credit rating in the nation, except for the commonwealth of Puerto Rico, said Matt Fabian, a bond analyst at Municipal Market Advisors, based in Concord, Mass.
The Associated Press
Taxpayers Inferior to Shareholders With Obama Bonds
(SPECIAL: pub. July 22, 2009;)
State and local governments, forced to close budget gaps by firing workers and shutting schools, may pay at least $4.2 billion more in interest than companies with similar credit ratings on Barack Obama’s Build America Bonds.
Congress’s Joint Tax Committee estimated in February that the Treasury would spend $9.8 billion through 2019 subsidizing the bonds. Matt Fabian, a managing director at Municipal Market Advisors in Westport, Connecticut, said in a June 22 report that the program’s price tag may reach $27.3 billion by the time all such securities mature in 2044.
Bloombeg.com
Build America Bonds Boom, Adding to Tab
(SPECIAL: pub. July 18, 2009;)
Washington's effort to jump-start the once-stagnant market for municipal debt has produced a program that continues to swallow new deals.
Led by a $352 million sale from the North Carolina Turnpike Authority, the Build America Bonds program generated $1.72 billion of new issuance this past week, comprising nearly a quarter of municipal sales. That is the highest total in three months, and four times the prior week's pace. The initiative, part of the $787 billion federal stimulus package signed in February, gives state and local issuers a 35% rebate on interest payments for new debt.
Wall Street Journal
Municipal bonds: Safety depends on the municipality
(SPECIAL: pub. July 14, 2009;)
If you're concerned with safety, you want to stick with what are called general obligation bonds. These are bonds that draw on the borrowers' general taxing power. There have been almost no defaults of general obligation bonds in the past 30 years, says Matt Fabian of Municipal Market Advisors.
USA Today
Fiscal crisis takes toll on California's bond ratings
(SPECIAL: pub. July 12, 2009;)
“California's issue is really a political crisis,” said Matt Fabian, managing director of Municipal Market Advisors, a bond analysis and research firm in Massachusetts. “The state has the financial ability to patch up its own budget. But it can't overcome the political problems: the polarization of the Legislature, the acrimonious political atmosphere and the requirement of a two-thirds majority to pass taxes or pass the budget.”
San Diego Union Tribune
California's Broke. Should You Invest in It?
(SPECIAL: pub. July 5, 2009;)
Time for some California dreaming: Will the state plug its budget gap, and are its bonds worth a gamble?
Yes, according to Matt Fabian, managing director of Municipal Market Advisors in Concord, Mass. As California hurtled toward its budget deadlines last month, interest rates on its tax-free bonds jumped. Residents can get yields north of 5 percent on intermediate-term general obligation bonds and 6.2 percent on long-term bonds. Nonresidents can buy into the bonds through many national municipal funds, which buy the bonds of many states.
The Washington Post
Muni bond downgrades add risk - but potential for higher returns, too
(SPECIAL: pub. July 2, 2009;)
Time for some California dreaming: Will the state plug its budget gap, and are its bonds worth a gamble?
Matt Fabian, of Municipal Market Advisors in Concord, says yes. Interest rates on California’s tax-free bonds have jumped. Residents can get yields of 6.2 percent on long-term bonds. Nonresidents will find the bonds in many national municipal funds.
Boston Globe
Wall Street awaits California's short-term borrowing plans
(SPECIAL: pub. July 2, 2009;)
Once California produces a fiscal 2010 budget more or less in balance, Wall Street has been expecting that the state would come looking for short-term financing to bridge the gap between current cash needs and future tax revenue.
Normally, this kind of borrowing -- via so-called revenue anticipation notes, or RANs -- is no big deal. Investors usually are eager to fund the notes because they mature in 12 months or less, and the interest paid is exempt from state and federal income tax.
Los Angeles Times
Muni Downgrades Add Risk, Prize to Bond Game: Jane Bryant Quinn
(SPECIAL: pub. July 1, 2009;)
Time for some California dreaming: Will the state plug its budget gap, and are its bonds worth a gamble?
Matt Fabian, managing director of Municipal Market Advisors in Concord, Massachusetts, says yes. As California hurtles toward its budget deadlines this month, interest rates on its tax-free bonds have jumped. Residents can get yields north of 5 percent on intermediate-term general obligation bonds and 6.2 percent on long-term bonds. Nonresidents will find them in many national municipal funds, which buy the bonds of many states.
Bloomberg.com
Twins Add $4 Million to Debt Account After Interest-Rate Hikes
(SPECIAL: pub. June 29, 2009;)
The Minnesota Twins transferred $4 million to a debt-service fund for their new stadium after high interest rates caused by 2008’s credit-market turmoil drained an account devoted to paying off the bonds.
Bloomberg.com
World Bank to Green Shoots: Not So Fast
(SPECIAL: pub. June 22, 2009;)
By Jon Nadler Bullion values eroded swiftly as the market commenced trading on Monday .... according to Municipal Market Advisors in Concord, Massachusetts. ...
International Business Times
Is This a Better Bond?
(SPECIAL: pub. June 22, 2009;)
But Build America bonds are municipal bonds with a twist—their yields are not ... says Matt Fabian, managing director of Municipal Market Advisors, ...
Smartmoney.com
Bernanke Must Reassure 'Confused' Market About Rate Strategy
(SPECIAL: pub. June 22, 2009;)
Yields on AAA-rated, 10-year general-obligation municipal bonds rose to 3.49 percent ... according to Municipal Market Advisors in Concord, Massachusetts. ...
Bloomberg
Muni bond regulator seeks disclosure by banks
(SPECIAL: pub. June 22, 2009;)
The move is the latest effort by the Municipal Securities Rulemaking Board, ... of Municipal Market Advisors, said the proposed amendment is a good one. ...
Bismarck Tribune
Which State Is Next For Bailout
(SPECIAL: pub. May 26, 2009;)
Matt Fabian of MMA Research on states asking for government funding if California receives a bailout.
Fox Business News
Small Town, Big Debt
(NEWS: pub. April 8, 2009;)
Municipal bonds are traditionally safe investments, but cities and counties across Tennessee got in financial trouble because they entered the complex world of derivatives.
NYT- Thomas Doe
NEW MUNI LEGISLATION IN THE WORKS
(SPECIAL: pub. March 12, 2009;)
In Washington, D.C. it is becoming increasingly likely that the House Financial Services Committee will release legislation impacting the municipal bond market. The legislation is apt to touch on:
- A Federal Guaranty of general obligation bonds at a low cost;
- Reinsurance of the monolines; and
- A backstop of banks providing letters of credits for tax-exempt variable-rate demand obligations.
This legislation could come out as soon as Friday but timing remains uncertain. Policy makers have only said that legislation is “in an advanced stage” and that the Chairman of the committee “signed off on all 3 major components.”
We stress that any proposed legislation is just that. MMA has noted an increasing chorus of policy makers and participants discussing these topics in the past few weeks. We will discuss market impacts in the 12:30 pm Insight today.
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Sports stadiums face economic fault line
(NEWS: pub. February 9, 2009;)
Everyone, including bond investors, are reading the same headlines," said Tom Doe, whose Concord, Mass.-based Municipal Market Advisors offers consulting services to municipalities. "They see the Yankees spending $400 million on three players, and then wonder, given the economy, are they going to fill all those seats, will anyone pay for the luxury suites and will there still be a naming rights deal."
LA Times
Federal debt-purchasing program may exclude states
(NEWS: pub. Ocotober 9, 2008;)
The Fed also might be worried that if it began to lend money to California and other high-profile states, it could set a precedent for bailing out all 64,000 issuers of municipal debt, said Matt Fabian, a principal at Municipal Market Advisors, an independent research and consulting firm in Concord, Mass.
"It sets up a potentially unsustainable demand from other issuers," Fabian said.
LA Times
Under Strain, Cities Are Cutting Back Projects
(SPECIAL: pub. September 30, 2008;)
By MARY WILLIAMS WALSH
Local governments have been effectively shut out of the bond markets, raising the cost of operations and threatening larger projects.
[ click to NYT ]
Muni Money-Fund Yields Surge
(SPECIAL: pub. September 27, 2008;)
Wall Street Journal - USA
That ratio is "about as high as it's ever been," says Matt Fabian, senior municipal analyst at Municipal Market Advisors. Also propelling muni-fund yields ...
[ click to WSJ ]
US Public Finance Market Hit Hard by Capital Freeze
(SPECIAL: pub. September 25, 2008;)
September 25, 2008, By Nicole Bullock in New York
...have a school that is open - that makes a freeze in the muni-market significant," said Thomas Doe, CEO of Municipal Market Advisors (MMA). "If you can't get access to the capital markets, you may have to raise taxes to generate the...
[ click to FT ]
Money Market Crisis
(SPECIAL: pub. September 25, 2008;)
Managing Director at Municipal Market Advisors discusses how new money infrastructure volumes are down despite market expansion. Also; effects of the banking crisis on muni markets, the role of individual investors, and new legislation aimed at increasing underwriter participation.
DerivActiv (mp3)
The municipal market faces a wide range of risks
(OUTLOOK: pub. September 15, 2008; 9:00a EST)
Like the rest of the global financial system, the municipal market faces a wide range of risks in recent developments, in particular if the knock on effects of Lehman’s bankruptcy, Merrill Lynch’s sale, and AIG’s restructuring begin invasive and widespread credit and confidence trauma. More locally, the reduction of these firms in our industry will reasonably restrict both primary and secondary market liquidity; current holders may have difficulty exiting positions without large price concessions, and issuers may be forced to wait some months before accessing the capital markets. There is also risk that secondary selling or investor redemptions, coming amid a strong flight-to-safety in Treasuries, will exacerbate underperformance and force more bonds into an unfriendly market. However, this is not the end of the muni market; we expect support at or behind current levels from the individual investors who have been, to date, driving muni demand.
”Muni credit may ultimately be strained by the current crisis as issuers’ capital market access is further diminished, infrastructure projects are postponed, and tax revenues cut
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FSA’S and Assured’s Warnings
(SPECIAL: pub. July 22, 2008;)
Last night, Moody’s issued a downgrade warning on FSA’s and Assured Guaranty’s financial guaranty ratings. While the market had begun to express some caution regarding FSA, the risk to Assured is a surprise. In its reports, Moody’s notes FSA’s exposure to directly-insured residential mortgage backed securities and Assured’s relatively concentrated portfolio, while both companies face very difficult new structured finance business generation (insured US structured paper issuance is down 97% YTD).
The report also alludes to a potential drop in municipal investor demand once Moody’s public finance group shifts municipal bond ratings to the global (corporate equivalent) scale. Finally, we believe Moody’s is also attempting to shore up the value investors’ place in Aaa ratings generally (we have heard repeatedly from investors that “Aaa” is no longer the indicator it once was).
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Tom Doe: Prop. & Casualty Industry Slowdown Will Bring Muni Supply; Panic of 1837
(SPECIAL: pub. July 8, 2008;)
Tom Doe, CEO of Municipal Market Advisors speaks on the property and casualty insurance industry and its possible reduced need for tax-exempt income. Also: primary volume trends, the month of July in historical perspective, and the similarities of today with the Panic of 1837.
DerivActiv.com MP3
Matt Fabian: Using the MMA Consensus as a "Behavioral Overlay" to the MMD
(SPECIAL: pub. May 28, 2008;)
Matt Fabian, Managing Director at Municipal Market Advisors says the MMA Consensus is a “powerful and predictive” market indicator. Also: the BMA swap on the rise as a hedging vehicle, Moody’s credibility concerns, and the lessening value of bond insurer ratings.
DerivActiv.com MP3
MMA Muni CDS (MCDX) NEW REPORT
(SPECIAL: pub. May 6, 2008;)
CREDIT DEFAULT SWAPS. Today, Markit launched MCDX, a new index of seven or more dealers’ daily evaluations of 50 uninsured, investment grade municipal credit default swaps (CDS). Accounts are able to take long or short positions on the index, reasonably correlating to their respective views on generic muni credit and rates. In general, our initial opinion is favorable—CDS should lead to stronger demand for muni bonds and more consistent credit risk pricing. But there are notable risks as well, including amplified counterparty exposure and cash market pricing volatility.
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MMA"s Response To Moody’s Proposal For Global Scale Ratings For All Issuers
(SPECIAL: pub. Apil 14, 2008;)
Municipal Market Advisors generally supports Moody’s proposal to provide Global Scale Ratings (GSRs) for all municipal issuers, regardless of tax status. However, we believe the following improvements are essential to more permanently resolve the problems the municipal scale has created for issuers, investors, and regulators. These improvements are:...
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Supreme Court Muni-Bond Delay Has Lawyers, Markets Puzzling
(SPECIAL: pub. April 9, 2008;)
(Bloomberg) -- ''The length of time to me means that there could be more subtlety to the decision, or that the decision itself might not be as cut-and-dried as we had expected,'' said Matt Fabian, managing director at Municipal Market Advisors, a Concord, Massachusetts-based research firm....
[ click to Bloomberg.com ]
MMA Special Coverage: Congress Critical But Will Allow Industry To Self-Regulate For Time Being
(SPECIAL: pub. March 13, 2008;)
The hearing was colorful, Several members — notably chairman Barney Frank (D-Mass.), Rep. Michael Capuano (D-Mass) and Rep. Emanuel Cleaver (D-Mo.), the latter two are former mayors — took the opportunity to blast state treasurers on the panel , the bond insurance industry and the rating agencies for letting the market be “held captive” by a dual-rating standard. Frank opened the hearing in Biblical fashion telling the audience: “Let my people go,” referring to local and state governments...
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Munis: The new power portfolio
(SPECIAL: pub. February 12, 2008;)
(Money Magazine) -- If there's a lesson to be learned from the stock market's recent slide - triggered by massive losses on exotic and risky mortgage-backed securities - it's that there's nothing wrong with simple, boring investments. Like girders supporting a bridge, plain-vanilla bonds can help buttress a portfolio in a shaky market such as this.
But in January, high-quality five-year munis - those rated triple A by agencies like Standard & Poor's or Moody's - were paying out 2.80% on average, according to Municipal Market |ADVISORS. That was notably higher than the 2.53% yields of five-year Treasuries. Yes, rates are still modest in absolute terms. But "it's been very rare that you can buy a true triple-A-rated muni bond at 100% of Treasuries," says George Strickland, managing director of Thornburg Investment Management.
[ click to Money.com ]
Next phase of credit crunch, the monoline meltdown
(SPECIAL: pub. February 8, 2008;)
MARK COLVIN: The global credit crunch is entering a dangerous new phase. In the United States, big bond insurers are facing huge losses. They're the companies that insured the debt of defaulting subprime mortgages. Many of them are now facing ratings downgrades and potential collapse. That's a major worry because if the bond insurers fail, it will create a vicious cycle as their investment bank customers are left holding the can. Some experts say the banks could suffer an extra $US 100-billion in losses and write-downs, causing a fresh round of turmoil on credit markets and stockmarkets.
[ click to ABC.NET.AU ]
Do Bond Insurers Need CPR? Fears of a muni market meltdown may be overblown
(SPECIAL: pub. February 8, 2008;)
"By and large, the decision is made by the investor." Adds Matt Fabian, managing director of research firm Municipal Market Advisors: "It's not about credit quality. It's just a bureaucratic cost municipal issuers have to pay."
[ click to BusinessWeek.com ]
Davis V. Kentucky - Decision
MMA is expecting a Supreme Court Decision on the Davis v. Kentucky case in the next few weeks; the likely outcome will affirm states’ ability to tax in- and out-of-state bonds differently and shore up the muni market status quo.
Next Big Crisis Could Involve Bond Insurers
(SPECIAL: pub. January 31, 2008)
There are $2.6 trillion worth of municipal bonds outstanding in America, with New York State holding about 7.5%, or roughly $200 billion, according to research firm Municipal Market Advisors.
click to NY Sun
In the absence of a credible bailout...
(SPECIAL: pub. January 31, 2008)
"In the absence of a credible bailout plan, I think investors and issuers need to assume that MBIA, along with all of the other companies, will face continuing, worsening downgrade pressure all year,'' Matt Fabian, a managing director at Concord, Massachusetts-based consulting firm Municipal Market Advisors, said in a telephone interview.
click to Bloomberg.com
Downgrades aplenty
(SPECIAL: pub. January 25, 2008)
"[The insurers] have a real lot of exposure to subprime credit cards and auto loans, for example. As those asset classes don't perform as well, even if you see a fraction of the damage you have seen in sub-prime housing, it is going to cause the ratings agencies to increase the requirements again."...
click to BusinessSpectator.com
Corporate Ratings for Municipals?
Most municipal bonds are rated on a different, more conservative rating scale than corporate bonds. Triple-A US corporate bonds have up to 10x the historical default rate of single-A munis (Fig. 1). Neither municipal issuers, nor the individual investors who own the large majority of outstanding paper or fund shares, understand this point. As a result of the “muni rating scale,” taxpayers likely pay a large premium to access the capital markets (via insurance and rating fees and higher interest rates). We recommend that state and local issuers, or their federal regulators, consider requiring rating scale equivalency either directly or by policy alternative.
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2008 Brings Uncertainty and Also Opportunity
There are substantial uncertainties in municipals, but market-level risks one way or the other do not appear large. Last week, yields rallied across the curve with economic and corporate data raising fears of recession, and with an apparently solid January reinvestment bid putting away a fairly thin supply of paper. This was, once again, a difficult week for hedged or arbitrage-oriented investors as tax-exempts underperformed Treasury strength, and muni relative value indicators were pressed almost uniformly cheaper.
While we continue to recommend holding back some liquidity allocation to take advantage of any negative repricing, near-term prospects for such appear limited. Thus, with credit and maturity spreads returning, there is some yield opportunity for buy-and-hold investors willing to extend out along the curve. Total return investors are better positioned 5-10yrs
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NYT: These Bonds May Shine (Despite Your Tax Bracket)
Hedge funds with large leveraged positions in municipal bonds contributed to the situation. These hedge funds had shorted Treasuries to hedge against their muni bets, explained Thomas Doe, founder and chief executive of Municipal Market Advisors. As Treasuries began to rise, the hedge funds had to sell munis to cover their exposed shorts in Treasuries.
“Last August was the first time rates went down and muni yields rose,” Mr. Doe said. “That’s because leveraged investors had to sell their munis.”
click to NYT site
CNBC: Matt Fabian discussing municipals with Ron Fielding from the Rochester Oppenheimer Funds.
Trouble in the debt markets also took a bite out of municipal bonds in August. Matt Fabian Municipal Market Advisors sr. analyst, and Ron Fielding, OppenheimerFunds portfolio manager, discuss the cause of the bust and where the recovery begins.
click to CNBC video
theStreet.com - Mortgage Crisis and Muni Bond Funds
Earlier this year, before the tender-option-bond programs started backfiring, investors using this strategy accounted for about 8% of the $2.4 trillion market, according to Municipal Market Advisors, an independent research and strategy firm.
click to theStreet.com story
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