Are we looking in the wrong places?
John Carney of CNBC argues for the possibility of a black swan event for muniland.
He’s right about unknown risks but I think he is looking in the wrong place.
He doesn’t mention municipal derivatives in his analysis. I mean interest rate swaps not municipal credit default swaps.
Derivatives are likely to be where muniland’s biggest risks lie.
From John’s blog NetNet:
Many muni bond professionals believe that fears of a massive wave of defaults are “overblown”—and they look at recent signs of strength as an affirmation of their view.
Unfortunately, many of those who insist on the strength of the muni market seem to be blind to the vulnerabilities of muni bonds.