MuniLand Snaps: March 7, 2012

March 7, 2012

Bob Nelson, the product manager for Thomson Reuters MMD/TM3,  tweeted out this chart last night with the comment “AAA 10yr ratios went from 85% to 125% as supply ramped up in 2H 2011. vis. supply now highest since mid-Nov.” Translation: Municipal bonds are still expensive, although there has been a ton of new supply. Demand for municipal debt is massive and has disrupted the typical supply-demand relationship.

Good Links

MSRB: 2011 factbook for the municipal bond market

WSJ: Moody’s sees shakeout in weak municipalities

WSJ: S&P proposes new methodology for rating GO muni bonds

Pension Pulse: U.S. pension woes worsening?

Bloomberg: Table of state pension funding levels

Illinois Statehouse News: It’s not clear at all what Illinois needs to do about pensions

Bloomberg: Circuit judge blocks Florida pension cuts sought by Governor Scott

The Republic: Residents don’t pay any property taxes and have to disband town government

Reuters: “[R]eal state of our finances…is worse than any of us could have imagined”

Bloomberg: Joe Mysak: Muni issuers that keep secrets from the market risk a superdowngrade

Bond Buyer: Mammoth Lakes, California, tries to skirt Chapter 9

@Twitter Talk

New Deal 2.0 @NewDeal20 New Deal 2.0   Thomas Edsall notes some studies showing the economic crisis has exhausted our empathy:
Jen DePaul @BondBuyerJen Jen DePaul  The IRS has released revised versions of the 8038 GC and 8038 CP.
Jen DePaul @BondBuyerJen Jen DePaul  8038-GC is a form for small tax-exempt governmental bond issues, leases & installment sales. 8038-CP is used by issuers of BABs
NCSL @NCSLorg NCSL An in-depth look at online sales tax collection, and the Marketplace Fairness Act, from our magazine:
Detroit Free Press @freep Detroit Free Press   Emergency manager alone can’t save Detroit: City’s financial outlook called ‘hopeless’
Ted Nesi @tednesi Ted Nesi “Bankruptcy is certainly on the table at this point,” mayor of Woonsocket warns after revealing huge new city deficit:…

Rich Saskal @RichSaskal_BB Rich Saskal    Turns out Stockton isn’t alone in California’s AB506 process. Who else? Find out in today’s Bond Buyer.

Pension Dialog @PensionDialog Pension Dialog    Proposed increase in LA public employee contributions wouldn’t reduce pension liability but go to the general fund

Bond Girl @munilass Bond Girl   Funny that politicians do not complain about having to make draconian budget cuts when a sports team wants a new facility.

Grist @grist Grist   We’re looking for the goofiest city re-branding campaigns ever! Send us your lousy city slogan using #CitySloganFail


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Supply is just starting to get ramped up after the Jan/Feb. lull. Keep in mind that the visible supply figure is forward looking, so that is a tally of the upcoming deal pipeline looking out about 6-8 weeks max. Also note that those ratios in 2011 were influenced not only by muni supply, but also Treasury rates which were falling precipitously in the middle of last year. The main point I’m trying to make in that chart is that ratios are still relatively low, and could move quickly higher if forward supply remains elevated as played out in the middle of 2011. History is especially likely to repeat itself if the Fed kicks in with some variant of QE3 which pushes Tsy rates lower yet again. Demand has been good in early 2012, but aside from mutual fund cash flows (which have been very positive in recent weeks) most other demand is seasonal due to coupon/principal reinvestment and after propelling buyers in Dec/Jan, this component of demand won’t kick back in again until June/July which is another heavy reinvestment period.

Posted by RNelson | Report as abusive

Excellent explanation Bob. Thanks for sharing it.

Posted by Cate Long | Report as abusive