On Thursday, a small municipal bond deal for a Michigan county was postponed due to “lack of investor interest.” This is unusual, given the yield premium offered on the bonds. The Wall Street Journal has the story:
Trading bonds in muniland is a mess unless you have access to systems that provide information on current market levels for various types of bonds. It’s almost impossible to know, as a retail investor, if your bond purchase is close to a market level or if it is, in fact, marked up excessively. You are basically shooting in the dark and it’s probably best to just stay away from buying these bonds individually.
I heard an economics editor give an amusing response the other day when asked if the U.S. has “free” markets. She responded that, since all markets are regulated, that, pretty much, yes. I had to chuckle because municipal bond markets, although regulated reasonably-well on the primary side when bonds are issued, have minimal supervision or regulation on the secondary or trading side after bonds have been issued. It’s difficult to have confidence that investors are always protected when you read stories about abuses like excessive mark-ups, for example.
When I started the Muniland blog in April, 2011, municipal bonds were being affected by a low interest rate environment, making them expensive and offering low yields to investors. Since non-institutional investors usually have to pay big mark-ups to buy them, it didn’t make sense to encourage people to own individual bonds. But the interest rate environment in the next year will be changing, and folks might want to consider good quality municipal bonds as long-term investments. It may start to make more sense that I talk about trading commentaries by muniland professionals.
Although there are people, like Bond Dealers of America CEO Mike Nicholas, who have predicted that federal tax reform will not happen until 2017, the Senate Finance Committee has kick-started the process. Law firm KL Gates sent out a primer about the Senate Finance Committee plans:
About one third of the U.S. House of Representatives signed a letter to keep the current tax exemption for municipal bonds in place. Investment News got the story:
The Federal Reserve Bank of New York has begun publishing data about the bond holdings of its primary dealers. Primary dealers are the largest and most active trading groups in bond markets. This new data will add a lot to our understanding of market flows.
Muniland’s oversight organization, the Municipal Securities Rulemaking Board, has proposed some new rules to the SEC that may make it easier for retail investors to buy bonds that are newly brought to market.