ignorant

Why the Muni Bond Market Is in Decline

Look at closed end municipal funds that are leveraged. They sell at discounts to net asset value in the range of 20-30 %. So the underlying municipals are market distressed and then discounted again by 20% because the closed end fund is leveraged. Many of the closed end funds are partially funded using auction rate securities. Considering the rate uncertainty of using this funding mechanism perhaps some discount is appropriate but how does 20-30% make sense.


On Dec 15 11:48 PM BondMan wrote:

> I must say I agree with BondGuy, if this were a risk averision story
> we would see money flowing into high grade muncipals which we have
> not. The buyer of last resort, once large institutions, has been
> replaced with the retail investors which cannot bear so much supply.
> Too make matters worse large insititutions refuse to buy munis right
> now with yields so high in fears of devaluing their portfolios.
>
>
> Not giving states and municipalities a piece of the TARP pie makes
> absolutely no sense to me. You wanna increase jobs? Invest in states'
> infrastructure and such.
>
> I am staying away from the stock market but refuse to park my money
> in Treasuries when I can buy tax-free treasuries, pre-re's, which
> are yielding about 170% of treasuries on a nominal basis. On a taxable
> equivalent basis this is about 300%!.....