This month saw more of news about financial market volatility. Tax day has come and past. The Month’s municipal bond news included:
- 5/7/12: Illinois Bonds Draw Big Interest – WSJ.com. – Illinois sold a whopping $1.8 billion in Municipal Bond debt last week. It had to price them 1.75% higher than the benchmark rate. S&P had previously warned that it may cut Illinois rating from the present A- due to continued problems. It seems like investors are desperate to get any yield these days.
- 5/6/12: Bond firms’ campaign gifts linked to sales pacts. – Major companies who were competing for California Bond underwriting donated $1.8 million to school districts and ended up getting hired for a majority of the projects. At least they didn’t take them to strip clubs!
- 5/16/12: Assured Guaranty is slated for a possible credit rating downgrade to single A from Aa3. If they are downgraded, it may lower demand for their insurance from Municipalities. Individual investors may be less willing to buy Muni Bonds due to bonds not being insured. In 2011, 5.2% of new Municipal Bond issues had insurance. A fairly small number, investors have understood that they need to do their homework on the bonds quality and not value insurance that much.
- 5/18/12: Cities are getting more savvy with Municipal Bond buyers. Chicago recently had a luncheon to help assure investors that their working hard to make things right. Other cities following the same tack, appear to have calmed investors and perhaps even lowered interest costs that they had to pay.
- 5/24/12: Treasuries Losing Appeal With Widest Yield Penalty: Muni Credit – Businessweek. – 10-year tax-exempt muni bond yields rose to 108% of those on Federal debt last week, the highest since Dec. 2. This makes municipal bonds more attractive than Treasuries for most people.
- 5/30/12: MSRB Launches Online Investor Toolkit – MarketWatch – The MSRB has added some very useful tips for individual investors interested in municipal bonds. They are helping to educate individuals on this very confusing marketplace full of hidden risk and markups.
This week (April 22, 2011 – April 29, 2011) saw more of news about the US government’s deficit battles. Tax-free Mutual funds saw continued outflows. Tax-free money market funds saw major outflows, undoubtedly for people to pay their taxes. The Weeks municipal bond news included:
- Ignore the hype about municipal bond defaults reminds people that default rate generalizations are misleading. (US News)
- O’Hare airport has a $1 billion municipal bond offerings coming up, one of the biggest in a while. They are moving up the offering because they believe that conditions in the municipal bond market have improved! (WSJ)
- A list of the 10 top municipal bond issuers with the widest credit spreads a.k.a. most financially challenged. Topping the list are Puerto Rico, Illinois, and California.(Reuters)
This week’s (January 3-7, 2011) saw life come back into the market after the holidays. Slightly falling prices in Municipal bond Mutual Funds. This week municipal bond news included:
- Moody’s states that no state will default on rated bond debt this year. 20 more U.S. counties have achieved a ‘AAA’ rating since January 2008. Are they a little optimistic?
- 1841 saw eight states and Florida default. New taxes the new regulations pulled them out of that hole.
- Illinois is seeking a income tax increase to help plug their massive $13 billion deficit. Hooray!
- Others see what we mentioned last year, Municipal bonds fell in tandem with Treasury Bonds. Muni’s day of reckoning hasn’t occurred yet but investor outflows continue.
- Chowchilla, CA and has defaulted on municipal bonds
California Municipal Bond Mutual fund Movement
Fidelity intermediate term municipal bond fund (FCSTX) 0.05% for the week.
Month to date: 0.05%. December -0.64%. Current Yield 1.74%.
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) -0.18% for the week.
Month to date: -0.18% December -1.69%. Current Yield 3.47%.
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 Fidelity intermediate term municipal bond fund (FCSTX) and Vanguard California intermediate term municipal bond fund (VCAIX) performed this month on this graph:
Bill Gross, the wizard behind Pimco, has just invested $4.4 million in his companies’ closed-end Muni bond funds. Being a smart investor, he bought one fund, PMX at a 3.4% on Dec. 10. Municipal bond prices have been stumbling of late, so this is a good sign. He is widely seen as one of the experts in the bond market.
Bill Gross added to his shares from December 8-10, 2010 in the Pimco California Municipal Income Fund (PCQ), Pimco California Municipal Income Fund II (PCK), Pimco California Municipal Income Fund III (PZC), Pimco Municipal Income Fund (PMF)and Pimco Municipal Income Fund III (PMX), according to the SEC filings.
Mr. Gross said in an CNBC interview that he found some Muni funds presented a buying opportunity relative to Treasury bonds, and in some cases, corporate debt. He also stated that he is avoiding Illinois debt.
Illinois is in the news for a tobacco bond offering this week. This are the first tobacco bonds issued in the last 2 1/2 years. Illinois has one of the lowest credit ratings of all 50 states. It needs money from the offering to pay past-due bills to vendors! Sounds like a pretty bad investment for us.
Tobacco bonds are backed by payments made to the state government by tobacco companies. These statements are based on projected cigarette sales. The problem is that cigarette consumption keeps dropping, making the original projections way out of whack. This leads to fears that defaults could occur.
The offering actually went pretty well. The deal was marketed conservatively and garnered a lot of retail investor support.