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By Miriam Sjoblom, CFA | 05-28-2009 12:05 PM

Deep Research Key in Stormy Muni Market

Hugh McGuirk, head of the municipal bond team at T. Rowe Price, on the firm's research focus in the challenging credit environment and opportunities in revenue bonds.

Miriam Sjoblom: Hi, I'm Miriam Sjoblom, a mutual fund analyst at Morningstar. I'm here at the Morningstar Investment Conference with Hugh McGuirk, who is head of the municipal bond team at T. Rowe Price. Thanks for joining us.

Hugh McGuirk: Thank you, Miriam.

Sjoblom: To start out, we talked in our panel today about just the really dramatic changes that have happened in the municipal bond market. I think one the big things that happened over the past year was that investors had gotten used to relying on some crutches like bond insurance or rating agency ratings in picking their bonds. I think what stands out about your approach is that you never relied on those type of things. You've always done your own research and that's kind of the cornerstone of your approach. I'd be interested in hearing more about that process.

McGuirk: Sure, Miriam. Thank you. We have always looked through to the underlying issuer. We have never relied on the mono-line insurers for their guarantee. As such, I think the market environment for '08, when the mono-line insurers had some difficulties, I think that helped us out a little bit relative to others, when maybe they were more reliant on insurance, rather than looking through the underlying. You asked about the credit market environment and all too. If you look at the muni market as a whole, five years ago it was a very benign credit environment. 85% of our market--if you look at the Lehman index, now Barclay's index--it was AAA or AA. Today it's around 60%.

So the overall measured credit quality of our market has declined, and that's made it some much more important to have good research to make sure that we're making the right investments in this challenging market.

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