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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)
|
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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Municipal Bonds: Woe Is Me |
Seeking Alpha - April 21, 2011 - by Carl Dincesen
Thank goodness, the hype about defaults has quieted down, just in time for an event that could do far more damage because it will be misunderstood. I am referring to a 25% probability the State of California will not have the cash this May and June to redeem billions in revenue anticipation notes sold to the public this past December.
Should that occur, a municipal bond buying opportunity on a scale not seen in decades would unfold.
Only near historic low interest rates could dampen the party for new investments. That is if state and local government issuers tap the market and many will based largely on construction contract commitments. The rest have degrees of optionality based in part on borrowing cost.
Very little must be issued to redeem maturing debt, California being a good part of that small amount. Some pros are publicly cautioning about a return to volatility in the near term and California notes are probably the reason why.
This would be unfortunate because the risk of monetary default on the California general obligation bonds is minimal for the foreseeable future. The worst damage would be to investors who not that long ago paid high-grade prices for the state’s bonds based on AA ratings given by the public rating agencies. The word “public” is used because those ratings are free to the public when an issuer sells bonds. They are printed on the cover page of the offering statement and used to advertise the bond issue.
California has not had a balanced budget for ten years. Common sense alone would tell an investor that the State’s bonds were over rated and overvalued pre-recession. Big rating changes come as either a big surprise or when everybody knows and is expecting one.
There are too few municipal bonds outstanding but many of those issued do not compare favorably to the norm thirty years ago when voter approved general obligation bonds predominated. Still, public infrastructure is not being maintained let alone improved. Total municipal bond principal outstanding, about $2.8 trillion, is little more than the $2.5 trillion spent annually just on healthcare in the U.S.
Today an investor is more likely to get certificates of participation than property tax secured general obligation bonds. Certificates grant to the holder the right to receive a share of an appropriation by the governing body to pay rent that mirrors debt service on appropriation backed "debt". The appropriation is a device for government to comply with laws prohibiting the incurrence of debt without voter’s approval. An appropriation is just that, an optional expenditure for each succeeding governing body to decide to make or not make.
Don’t expect any relief from the court if the appropriation is not made unless your bond has a use and occupancy clause, prohibiting the government issuer from occupying the facility if rent (debt service) is not paid. In any event, do not expect to see a school or administration building shut and sold for who knows what amount, the real point is that holders of certain certificate backed obligations at least have an enforceable contract and will be paid if not on time, eventually as long as the facility remains essential.
For the complete article.
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Income Security Recommendation January 2013 Issue.
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