Munis gain as stocks sell off

August 5, 2011

Munis gain as stocks sell off

In a risky world, we’re seeing a flight to quality that’s benefiting muniland. From the Los Angeles Times Blogs:

Turns out it was a good idea to keep the faith in tax-free municipal bonds last winter when so many investors were bailing out.

It was an even better idea to buy more munis at that point.

While the stock market has dived this week investors have been bidding up the value of many muni bonds, apparently hungry to lock in tax-free yields.

That demand has pushed muni market yields sharply lower, in tandem with the steep decline in yields on U.S. Treasury bonds.


Financial Times: US municipal bonds bounce back

Bond Buyer: Munis and Treasuries Get Crazy

Bookends of muniland fraud

The Bond Buyer has an excellent article on the efforts of five Wisconsin school districts to get their money back after being defrauded by their brokers:

Lawyers for five Wisconsin school districts trying to recoup their ill-fated $200 million investment in collateralized debt obligations to fund their non-pension retiree health liabilities are engaged in formal mediation talks with the financial firms they blame for their losses.

This is bookended by an announcement from the Municipal Securities Rulemaking Board for a schedule implementing new rules for those who advise municipal entities:

Since October 1, 2010, the MSRB has been proposing rules for municipal advisors covering themes that are central to the activities of advisors and their work on behalf of state and local governments. These include rule proposals on fiduciary duty, conflicts of interest, pay-to-play and supervision, among others.

Rules currently in place include those on registration, assessment and fair dealing, among others.

Thanks for cleaning up the market, MSRB. Let’s hope that no one in muniland is ever sold a collateralized debt obligation stuffed with credit-default swaps ever again.

Rhode Island’s aggression

Yesterday, Reuters reporter Edith Honan interviewed Robert Flanders, the court-appointed receiver for Central Falls, Rhode Island. His language suggests hostility and aggression towards current and retired municipal workers. If I were Frank Bailey, the federal bankruptcy judge, I’d take this public display into account when weighing the fairness of proposed reorganization.  I complained about bondholders jumping the creditor line, and this is a greater indication of the odd path this bankruptcy is taking. I’ll write more about this. From receiver Robert Flanders (emphasis mine):

“Once the bankruptcy is filed, on Day One the receiver can slash pensions, blow up collective bargaining agreements and begin to implement the changes that are needed to effectuate the financial reforms that are needed without having to get anyone’s OK,” he said.


AP:  Central Falls council to meet, talk bankruptcy

Jefferson County delays decision

Stay tuned. From the Birmingham News:

Jefferson County Commissioners will hold off a decision on whether to take the county into bankruptcy until next Friday.

The commission returned from executive session at 5:20 p.m. Thursday after meeting behind closed doors for more than five hours.

They convened to discuss the most recent proposal from the county’s creditors and decide whether to file for Chapter 9 bankruptcy, approve a settlement with the county’s creditors or extend the period for negotiations.

Commissioners reviewed the creditors offer “in exhaustive detail” and are working on a counter proposal, said Commission President David Carrington.

Twitter Talk

@cate_long:  State and local governments will continue shedding jobs since they must annually balance their budgets and fed money will slow.

@MillerTabak: right now we see state and local government hiring (or firing) as the swing vote for today’s job report – a “hanging chad” for sure

@MikeStanton1891: So much for the theory that “Euro investors will never come back to munis if BABs are allowed to expire.”

@mattkatz00: No NJ Dem who voted for @GovChristie‘s pension/health bennies reform was endorsed by the AFL/CIO today, even labor’s own, Norcross & Sweeney

@kyamamuraStill early, but I can’t imagine anyone feels confident about avoiding mid-year #cabudget trigger cuts at the moment.

@munilass: Looks like senior bondholders of Las Vegas Monorail debt will be taking a significant haircut. And yet the LVMC plans to borrow more.

Good links

Bond BuyerTOB or Not To Be: Time for a Comeback?

Dow Jones: Muni Mutual Funds See $860.7M Outflow In Latest Week–Lipper FMI

Stateside Associates: State Answers to Federal Debt Questions

Bloomberg: Ohio’s Kasich Readies for Spending Cuts If Faltering Economy Clips Revenue

Washington Examiner: D.C. business groups ‘shocked’ over Gray’s veto on municipal bonds bill

Bloomberg: AIG Slashes Munis by $5 Billion as Benmosche Builds Mortgage Bond Holdings

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