Video Reports

Embed this video

Copy Code

Link to this video

Get LinkEmbedLicenseRecommend (-)Print
Bookmark and Share

By Jeremy Glaser | 11-29-2010 03:13 PM

Credit Worries Not Driving Muni Market

The recent sell off in Muni bonds is being precipitated more by a supply/demand imbalance than a loss of confidence in credit quality says 16th Amendment Advisors' Jed McCarthy.

Jeremy Glaser: For Morningstar.com, I am Jeremy Glaser. In recent weeks there's been a rather sharp sell-off in municipal bonds. Here today to give his take from the trading floor is Jed McCarthy. He's the Managing Member of 16th Amendment Advisors.

Jed thanks for joining me today.

Jed McCarthy: Hi, Jeremy.

Glaser: First off, can you give a sense of how big of magnitude of the sell-off this has been?

McCarthy: There's been quite a big sell-off in municipals in the last couple of weeks. Although in the last few trading days, things have firmed up from the lows. You really have to go back to the dark days of the last quarter of 2008 to take a time when munis have been in such disarray. To try to quantify what the sell-off has been, about two weeks ago AAA long-term munis were yielding about 4% and at the very high of the few days ago they got up to about 4.60 yield.

Glaser: So have we seen any firming in the market, since those peaks?

McCarthy: We have and that started really at the end of the week last week, where some of the forced selling that have been going on from some of the mutual funds seems to have abated. That coincided, with most of the calendar from a very heavy week having been mainly priced and because of that, the market firmed up pretty nicely, in the tune of about 20 basis points or so.

Glaser: So in last few weeks, obviously, we've been hearing about sovereign credit risks and people worried about credit. But what's your view as to what precipitated the sell-off, was it really a credit event or is there something else going on here?

McCarthy: I really don't think it was a credit event. Munis have suffered from what I'll call negative headlines, really for the last couple years. But recently, there really have not been any kind of big headline credit events in munis.

In fact some of the ratings services, Moody's and S&P have recently come out with a validation of municipals being very firm and stable credits and have expressed a view that, lot of the more sensational headlines in the news have been somewhat overblown. So, I don't think it was a credit event. It was really based on a large supply of munis coming to the market in a short period of time.

Read Full Transcript
{1}
{1}
{2}
{0}-{1} of {2} Comments
{0}-{1} of {2} Comment
{1}
{5}
  • This post has been reported.
  • Comment removed for violation of Terms of Use ({0})
    Please create a username to comment on this article
    Username: