Scott F

Opportunities for Gains in 2009: CEF Year-End Muni Discounts

Interesting finding but not statistically robust. You really need to take random samples of the funds and the sectors and see how reliable this has been over the years. Then you'll have far more statistical confidence that 38% or any % is significantly and causally correlated with year-end. Also, there are macro fundamentals that this ignores. These are largely New York and CA munis which are at high discounts. This makes sense as they have vastly over-leveraged their confederal debt. With so much debt and more growing though mutual financial crises in NY and CA, both are going to have to go to the debt market, cap in hand, and end up paying a lot more for their muni debt. The lower-yielding munis these funds hold are going to get killed, and as all these funds are leveraged, the carnage will be amplified, maybe by as much as the entire discount. Compare these to state munis that have no leverage, and it will give you a better handle on how the market is pricing this risk.