Comments on: The bumpy road ahead for munis http://blogs.reuters.com/felix-salmon/2011/02/09/the-bumpy-road-ahead-for-munis/ A slice of lime in the soda Tue, 18 Jun 2013 21:59:52 +0000 hourly 1 http://wordpress.org/?v=3.4.2 By: dWj http://blogs.reuters.com/felix-salmon/2011/02/09/the-bumpy-road-ahead-for-munis/comment-page-1/#comment-23878 dWj Thu, 10 Feb 2011 18:29:26 +0000 http://blogs.reuters.com/felix-salmon/?p=7240#comment-23878 Does creating an easier way for people to short munis increase the depths to which they're likely to fall? Certainly fear leads to drops below what you might consider a rational value for securities, but not, it seems, to the extent that bubbles overprice them, and if there's an active short side, it seems the bubble set-up could work in reverse. (I am, more than usual, completely making things up here.) Does creating an easier way for people to short munis increase the depths to which they’re likely to fall? Certainly fear leads to drops below what you might consider a rational value for securities, but not, it seems, to the extent that bubbles overprice them, and if there’s an active short side, it seems the bubble set-up could work in reverse.

(I am, more than usual, completely making things up here.)

]]> By: y2kurtus http://blogs.reuters.com/felix-salmon/2011/02/09/the-bumpy-road-ahead-for-munis/comment-page-1/#comment-23872 y2kurtus Wed, 09 Feb 2011 22:23:46 +0000 http://blogs.reuters.com/felix-salmon/?p=7240#comment-23872 Until a major muni issuer defaults there will always be a bid for the muni-market. The current bid is just not what muni-issuers got use to in 2010. That NJ issue that got cut back by 40% was only cutback because the managers thought the dislocation in the muni market was a short-term thing due to all the state bk talk going around. That the Fed openly scoffed at the idea of entering the muni space didn't help either. Spreads have widened but look at the nominal rates... they are still way below where they were in 2007. How is the outlook for muni's today compared with the outlook for muni's in 2007? Night and day different... smooth-sailing then vs armegedon now different. Rates are lower today. Now that the investment community has decided that the world isn't comming to an end after all stocks, commodities, and real-estate are all looking better than a 3.5% yield to maturity on 10 year muni paper. Offer investors a respectable return and the demand is there. Even at today's "elevated" levels the muni market is still UNDERPRICING credit risk and interest rate risk. Until a major muni issuer defaults there will always be a bid for the muni-market. The current bid is just not what muni-issuers got use to in 2010. That NJ issue that got cut back by 40% was only cutback because the managers thought the dislocation in the muni market was a short-term thing due to all the state bk talk going around.

That the Fed openly scoffed at the idea of entering the muni space didn’t help either.

Spreads have widened but look at the nominal rates… they are still way below where they were in 2007. How is the outlook for muni’s today compared with the outlook for muni’s in 2007? Night and day different… smooth-sailing then vs armegedon now different. Rates are lower today.

Now that the investment community has decided that the world isn’t comming to an end after all stocks, commodities, and real-estate are all looking better than a 3.5% yield to maturity on 10 year muni paper. Offer investors a respectable return and the demand is there. Even at today’s “elevated” levels the muni market is still UNDERPRICING credit risk and interest rate risk.

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