Forget the talk about a collapse in the municipal bond market — investors should be buying, according to a research note released last week by Municipal Market Advisors
Forget the talk about a collapse in the municipal bond market — investors should be buying, according to a research note released last week by Municipal Market Advisors.
Since the end of October, a wave of new issues, a downgrade of the tobacco sector and “really bad Treasury [bond] auctions” have caused price drops of up to 10% on muni bond funds, said Matt Fabian, managing director at Municipal Market Advisors.
That fall has driven about $5 billion in outflows from tax-free funds, putting even more pressure on prices in the thinly traded muni market, he said.
BUILD AMERICA BONDS
The muni bond market has “never handled sellers well,” Mr. Fabian said.
“People have been talking about a collapsing market forever,” he said.
That price adjustment, however, doesn't mean that investors face a greater chance of not getting paid, Mr. Fabian said.
Yields of 2.99% on 10-year munis and 4.61% on 30-year paper look attractive, he said, citing his firm's indexes.
Statements from Republican lawmakers that an extension of the Build America Bond program is now likely could spark a “fast rally,” according to the research note.
The Build America Bond program ends this year unless new legislation extends it.
The program has allowed taxable-bond funds to soak up a lot of supply.
On the other hand, if tax-free mutual fund investors “continue to pull money out ... for fear of a credit collapse, that could precipitate more selling,” Mr. Fabian said.
E-mail Dan Jamieson at djamieson@investmentnews.com.
