This week (January 17-21, 2011) saw some calm and even an up week for Vanguard’s VCAIX, but more outflows from the muni mutual fund market. This weeks municipal bond news included:
- Mutual funds lost $29 billion in outflows during the last nine weeks. $478 billion is the total size of the municipal bond mutual fund industry. Clearly Meridith Whitney has helped scare individual investors. (Bond buyer)
- Vallejo California is submitting a plan to exit bankruptcy. Some creditors will no doubt challenge it, but the judge may force them to accept the city’s plan or risk no payment. (WSJ)
- A law professor argues that to prevent bailouts, the bankruptcy law should be amended to allow states to file bankruptcy. This would allow the state to terminate pricey union contracts, reduce its bond debt, restructure the ‘Cadillac’ pension benefits. (WSJ)
- The mayors of Los Angeles and Chicago said that financial strains may cause cities to default on their municipal bonds. (Bloomberg)
- Blame Bernanke for most of the losses in a municipal bond market. 30 year treasury bond yields have jumped to nearly 4.6% since August 2010, a 30% rise. Thirty-year AAA rated municipal bond index has seen yield surged to 5%, a 36% increase. The additional increase is probably due to worsening state and local budgets, credit risk, and elimination of the build America bond program. Make sure you understand the average duration of your mutual fund. (WSJ)
- The yield on a low rated 10 year California general obligation bond is up to 4.72%. Top rated 10 year Muni bonds now yield 3.42%.
Municipal Bond Mutual Fund Weekly Price Movement
Vanguard tax-exempt California Money Market fund (VCTXX) is yielding 0.12% – Unchanged for the week.
Average maturity 1.3 years – Average Duration: 1.2 Years – Average Credit quality: AA. Exp Ratio: 0.20% Morningstar Rating: 3 Star
Fidelity Short-Intermediate Muni Income Bond Fund (FSTFX) 0.0% for the week.
Month to date: -0.37%. December 2010 -0.63%. Current Yield 1.7%.
Average maturity years – Average Duration: 2.7 Years – Average Credit quality: AA-. Exp Ratio: 0.50% Morningstar Rating: 4 Star
Fidelity California Intermediate term municipal bond fund (FCSTX) -0.09% for the week.
Month to date: -0.37%. December 2010 -0.64%. Current Yield 1.79%.
Average maturity 3.3 years. Average duration 3.1 years. Average credit quality AA. Expense ratio 0.35%. Morningstar rating 4 stars.
Vanguard California Intermediate term municipal bond fund (VCAIX) 0.28% for the week. Month to date: -1.49% December -1.69%. Current Yield 3.58%.
Average maturity 6.3 years. Average duration 5.8 years. Average credit quality A. Expense ratio 0.20%. Morningstar rating 4 stars.
See how the Fidelity intermediate term municipal bond fund (FCSTX) and Vanguard California intermediate term municipal bond fund (VCAIX) performed this week on this graph:
See how the municipal bond mutual funds we listed above performed this month on this graph: