Skip to content




Value in Municipals

As I previously mentioned, Muni’s have been thrown under the bus with European sovereign debt.  The fear is that the politicians will never have the discipline to cut budgets and tighten belts, just what we would expect from self-interested politicians.  The truth is that municipalities are in far better shape than many sovereign nations and they are actually required to balance their budgets unlike their large brethren.  Standard and Poor’s thinks the outlook is far better than perceived:

We believe the crises that many state and local administrators find themselves in are policy crises rather than questions of governments’ continued ability to exist and function. They’re more about tough decisions than potential defaults. This is because, for the states in particular, debt service generally holds a priority status relative to other obligations. Indeed, a state’s spending cuts in a recession may actually serve to protect debt service. The revenue declines that we think would likely cause default in many instances would need to be double what they were during the Great Depression.

What has the fear done to the fixed income markets?  As a simple measure we can look at 10 year general obligations from municipalities versus 10 year treasury yields:

The spread is at levels not seen since the global financial crisis

The spread between general obligation tax-exempt municipals and treasury yields of similar maturity is at very attractive levels.  In fact, municipals blow the lid off of most corporate bonds on a tax adjusted basis.  The yields might become even loftier, but it seems like a good opportunity to scale in.

Be Sociable, Share!

Posted in Economics, Markets, Politics, Trading Ideas.

Tagged with , , , , , , , , .


0 Responses

Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.



Some HTML is OK

or, reply to this post via trackback.



Get Adobe Flash player
Copyright © 2009-2013 SurlyTrader DISCLAIMER The commentary on this blog is not meant to be taken as an investment advice. The author is not a registered investment adviser. There is no substitute for your own due diligence. Please be aware that investing is inherently a risky business and if you chose to follow any of the advice on this site, then you are accepting the risks associated with that investment. The Author may have also taken positions in the stocks or investments that are being discussed and the author may change his position at any time without warning.

Yellow Pages for USA and Canada SurlyTrader - Blogged

ypblogs.com