| 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
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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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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Muni Funds Cut Standards |
Firms Now Buy Debt Backed by Downgraded Insurers
WSJ.COM
March 22, 2008
Nuveen Investments has become the latest mutual-fund manager to let its insured municipal-bond funds invest in lower-rated bonds from lower-rated insurers, amid widespread problems for bond insurers.
Nuveen is seeking to change the policies of 19 of its closed-end funds and four of its open-end funds so that they may continue to invest in securities rated by municipal-bond insurers that have been downgraded or might be.
BUY WHAT THEY CAN?
• Background: Bond insurers are facing big pressure as the credit crisis continues.
• The News: Mutual-fund firm Nuveen is the latest to allow its muni funds to invest in lower-rated insurers' bonds -- since enough better-rated ones may not be available.
• Impact on Investors: The quality of a fund company's research department will be more important than ever.
"I think that the key issue that we're addressing is the fact that there are fewer triple-A insurers out there," said John Miller, chief investment officer at Nuveen's Nuveen Asset Management, which manages $65 billion in fixed-income assets. "And some of the large triple-A insurers, we don't know if they're going to be triple-A in the longer run."
Deteriorated credit quality of securities backed by subprime residential mortgages has affected municipal-bond insurers, which have provided guarantees on these mortgage-related securities, Nuveen said in a statement.
"Further downgrades could jeopardize the funds' ability to achieve investment objectives and adhere to the AAA-insured investment parameter," Nuveen said.
Other fund companies, including Eaton Vance Corp., Franklin Templeton and First Investors Management Co., already have taken similar steps or plan to do so. BlackRock Inc., which also sponsors insured muni funds, declined to say whether it has made or plans to make similar amendments to its funds.
The implications of these moves for investors are unclear. Andrew Gunter, a mutual-fund analyst at Chicago investment-research firm Morningstar Inc., said the changes shouldn't concern investors who are dealing with fund companies that are doing their research. Such a move allows the fund company to buy the bonds that they think they should own given their value, regardless of their ratings, he said.
"The goal of muni insurers for a very long time now has been to manage the set of bonds they insure to zero losses," Mr. Gunter said. "It would seem unlikely, if they're doing that well, that regardless of what happens with their credit ratings, that these bonds are going to run into trouble over the long term."
Ratings firms now have major insurers MBIA Inc.'s MBIA Insurance Corp. and Ambac Financial GroupInc.'s Ambac Assurance Corp. on review with a negative outlook, while FGIC Corp.'s Financial Guaranty Insurance Co. has been downgraded to single-A, Nuveen's Mr. Miller said. In addition, a handful of smaller insurers that were previously triple-A have been downgraded as well, he said.
The changes to the Nuveen funds will permit them to invest most of their assets in insured muni bonds, with the insurer rated at least single-A or its equivalent by one nationally recognized statistical ratings organization at the time of purchase.
The insurers' ratings and the bonds' ratings are interrelated. In most cases for big agencies, such as MBIA and Ambac, the average underlying credit rating inside their portfolio is single-A, but the bond itself is rated triple-A because of the insurance policy, Mr. Miller said. If the policy gets downgraded, in most cases, the bond rating will decline to what is then the new highest rating, he said.
For the affected open-end Nuveen funds, the changes were to be implemented on March 20. For those closed-end funds affected, some changes will be implemented immediately, others may require 60 days' notice and others will require shareholder approval, Nuveen said.
Nuveen feels the changes are prudent "given market conditions" and the firm's ability to select bonds and perform research on the underlying securities, Mr. Miller said. The single-A and double-A universe is attractive to Nuveen now, and the changes mean that shareholders "can take better advantage of our expertise in the market and our research capabilities," he said, noting that the firm has 18 credit-research analysts that examine the muni market and credit within the municipal market full time.
Eaton Vance said last week that for 12 of its insured closed-end municipal bond funds, the credit ratings on bond insurers backing the obligations no longer have to be triple-A rated but can be rated as low as the high-Bs as long as 50% of their assets are at least A-rated. The funds may also have as much as 20% of their assets in unrated obligations as long as the fund manager deems them to be of investment-grade quality.
Franklin Templeton, which historically has purchased insured municipal bonds only if the covering policy was issued by an AAA-rated insurer, amended prospectuses of its insured muni funds last month. It said that "under unusual market conditions affecting the ratings of bond insurance companies," its insured tax-free income funds could now purchase insured bonds with policies issued by insurers rated below triple-A, but not below A.
And First Investors Management has made prospectus changes which will affect all of its 18 tax-exempt funds and will take effect May 18. It will permit the funds, which currently only purchase from insurers that are rated triple-A, to buy from insurers that are not triple-A rated.
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