| 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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Changes to Muni Ratings Could Puzzle Fund Investors |
WSJ.com, April 2, 2010
Two major credit-rating services are set to tweak their systems for rating U.S. municipal bonds this month, and the results could prove confusing for some mutual-fund investors.
The so-called recalibrations, planned by Moody's Investors Service and Fitch Ratings, will also broaden the investment base for some institutional investors and make it easier for investors to compare Build America Bonds to corporate bonds.
Behind the News
Moody's and Fitch are set to 'recalibrate' muni ratings.
· The Background:The firms will adjust muni ratings to level the scale used on different types of munis, which will make taxable instruments like Build America Bonds easier to compare with corporate bonds.
· The Raters' View: The moves will make for a more consistent ratings scale.
· The Bottom Line: For some institutional investors, the change could mean a wider range of investments. To individual investors, the move could prove confusing as some munis will look stronger.
Moody's said last month that it plans to adjust its ratings on municipal-bond issues to the same global scale it uses to rate corporate debt. Fitch Ratings followed suit. The Moody's changes take effect in mid-April. The Fitch changes begin on April 5 for states, the District of Columbia, New York City and Puerto Rico and April 30 for other municipal ratings.
Both companies stress the recalibrations aren't to be construed as ratings changes, but experts predict they will make many issues look more attractive. "Essentially, we'll see a large uptick in ratings across several of the traditional muni sectors," said Ben Barber, head of municipal bond investments at Goldman Sachs Asset Management.
Institutional investors are likely to take the changes in stride. Ashton Goodfield, head of municipal bond trading at DWS Investments, said the asset manager conducts independent credit research, as do most mutual-fund companies, so any changes won't affect how it perceives particular credit issues.
DWS's opinion on particular bonds is already often lower than those of the ratings firms, "and will be even more so" for those muni sectors that are recalibrated, she said.
However, mutual-fund investors who receive annual reports from their funds in June will likely see the average credit quality appearing higher than it did before, Ms. Goodfield said. With widespread news coverage of municipalities' big budget deficits, investors may be left scratching their heads when they see ratings for some of them improve, she said.
For individual investors who buy municipal issues through their brokers, the change may also be confusing, Ms. Goodfield said. These investors typically demand high quality, and "might end up buying credits they wouldn't have been able to buy before," she said.
In the fourth quarter of 2009, individual investors held about 35% of the $2.81 trillion in outstanding municipal securities directly and about 34% indirectly through mutual funds, according to the Federal Reserve.
Municipalities take their credit ratings into consideration when trying to balance their budgets. They know that a lower rating will raise their borrowing costs, so they work to maintain higher ratings, Ms. Goodfield said. If their ratings look better due to the recalibration, "I'm concerned that their fiscal discipline may not be as rigorous as it otherwise would be," she said.
David Alter, head of municipal research at Goldman Sachs Asset Management, said the effect of the recalibrations will be felt most in the taxable municipal market, where most issues are Build America Bonds. After the changes, investors will be able to make apples-to-apples comparisons between Build America Bonds, for example, and corporate credits. "Now, they can do an appropriate analysis at least from a rating perspective."
In addition, the changes will likely broaden the investment universe for some institutional investors which must invest within certain ratings guidelines. A pension fund, for example, may be able to invest in a credit that was rated triple-B, but is rated single-A after the recalibration, Mr. Barber said.
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