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| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
|
0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| More |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Opportunities Opening Up in Muni Market |
MORNINGSTAR - Jan. 31, 2011 - by Dave Sekera
The turmoil in the municipal bond market is forcing muni bond portfolio managers to sell what they can, not what they want to.
Credit spreads tightened over the course of last week, but widened Friday as the equity markets sold off.
With credit spreads near their lowest levels since before the crisis, investors are becoming increasingly frustrated with their investment opportunities. Portfolio managers are reaching for yield by lengthening the duration of their portfolio, swapping into longer-dated bonds, or extending further down the credit spectrum by purchasing lower-credit-quality bonds. For example, funds that concentrated in buying short-dated A rated bonds have been trying to swap into medium-duration bonds.
Bond dealers have very little inventory of either shorter- or medium-duration single A rated credits, so these funds are now moving down the spectrum of credit quality into BBB rated credits. This search for yield is prevalent across the entire spectrum of duration and credit quality. In the high-yield market, BB and B rated indexes are back to April 2010 levels.
We caution investors to measure the risk/reward dynamics of reaching for yield and conduct proper due diligence. One worrying trend we are seeing in the new issue market is transactions getting done that are reminiscent of precrisis deals. Within many of these new issues in the high-yield market, credit spreads are tight, debt leverage is high, asset coverage is low, and covenants are weak. In fact, in the leveraged loan market, "covenant lite" loans (bank loans that do not contain typical creditor protections) are making a comeback. Leveraged loans are the fuel that private equity sponsors use to conduct acquisitions, which supports our thesis that there will be a significant increase in acquisitions this year.
Munis
The municipal bond market has received a lot of negative attention over the past few weeks as analysts have been increasing their expectations for heightened default rates, and rating agencies have reported that they expect to increase the number of downgrades this year. These headlines have resulted in a significant amount of withdrawals from municipal bond mutual funds.
As mutual funds have been selling bonds to raise cash to fund redemptions, spreads have widened significantly. The municipal bond market spans tens of thousands of issuers, with bond issues often under $100 million. The turmoil in the municipal bond market is forcing portfolio managers to sell what they can, not what they want to.
This is leading to buying opportunities for investors who can traverse asset class lines and invest in different types of securities. Some corporate bond funds have a small investment basket in which they are allowed to purchase municipal bonds. For investors willing to conduct the appropriate due diligence, numerous attractive investment opportunities are available. For example, there have been instances where municipal bonds that are conduits for corporate issuers (such as pollution-control or industrial revenue bonds) have traded a yields at or wider than the same firm's taxable bonds.
In other news last week, S&P downgraded Japan to AA-, leading to a brief sell-off in the yen, but the downgrade did not appear to have a significant impact on the country's interest rates. For example, the 10-year Japanese government bond closed the week unchanged at 1.20%.
For the complete article.
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| Stuff to look at |
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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