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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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| 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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Municipal Bonds: Interview with Fund Manager Chris Ryon of Thornburg |
Investing Daily - May 2, 2011 - By Jim Fink
Municipal bonds are a great investment choice for high-income-tax-bracket investors. I liked the interview my colleague Ben Shepherd recently did with fund manager Chris Ryon of the Thornburg funds so much that I am reproducing it in full below. Enjoy! -- Jim Fink
After several high-profile analysts voiced concerns about the solvency of state and local governments, municipal bonds became the pariahs of the fixed-income universe. But Chris Ryon, one of the trio of managers who head Thornburg Intermediate Municipal A (THIMX, 800-847-0200), sees opportunities in this beleaguered sector. Municipalities continue to face challenges, but they’ve taken steps to get their fiscal houses in order with higher taxes and less spending. Educated investors can pick up bargains as long as they are mindful of hidden risks -- Ben Shepherd
Ben Shepherd: What’s the root cause of the volatility in the municipal bond (muni) market?
Chris Ryon: The market was beat up during the fourth quarter and early 2011, as several high profile analysts and investors made public statements questioning the solvency of many municipalities. The negative prognostications of about 50 to 100 municipal defaults running into hundreds of billions of dollars are overblown.
Nevertheless, these predictions have roiled the markets. After about 24 months of positive inflows investors began to take money out of municipal bond funds during the week of Dec. 15, 2010. Billions of dollars exited the market each week. The upside is that this volatility has created opportunities for municipal bond investors.
Ben: What’s your outlook on rates?
Chris Ryon: Over the next six to 12 months, the Federal Reserve should hold interest rates steady and the yield curve should remain extremely steep. The Fed’s made some comments suggesting that its policies will target stock prices. I’m not sure that’s a good thing. But rates for municipal bonds should end the year pretty much where they started.
Ben: Muni funds experienced huge outflows in the fourth quarter. Did the extension of the favorable George W. Bush-era treatment of dividends drive this exodus?
Chris Ryon: No. On a tax-adjusted basis, munis were still relatively attractive when the trouble started. Here’s what really happened. Many analysts had a negative outlook for credit markets. Although their negativity was overdone, it created a negative feedback loop.
People read these comments and took their money out of the muni market. A lot of money has returned, mostly from people who’ve taken their capital out of money market funds because these funds yield almost nothing.
Those investors may not be accustomed to the volatility typical of this asset class. They came in chasing income. They will invest in a variable net asset value (NAV) fund, watch the NAV fluctuate, decide that they don’t have the stomach for the volatility and exit their investment.
We’ve been telling our shareholders that if you come into these funds, you must have an appropriate investment horizon, which we define as two to three years.
Ben: We heard a lot about supply issues in the fourth quarter, when the Build America Bond (BAB) program expired. Is that an accurate assessment?
Chris Ryon: Build America Bonds accounted for about 27 percent of total municipal bond issuance in 2010. In the fourth quarter, particularly in November and December, BAB issuance was between 35 and 37 percent of total municipal issuance.
BABs had to be issued for infrastructure projects; they were part of the economic recovery plan. The big fear was that BABs would go dollar for dollar into tax-exempt issuance after the expiration date. That would increase the supply of tax-free municipal bonds and therefore depress prices. I don’t think that will be the case because these bonds have to be issued for infrastructure projects.
If the cost of funding a project changes and it’s no longer economical, issuers will cancel the project.
New Jersey governor Chris Christie canceled a $3.5 billion commuter train tunnel to New York City because the state couldn’t afford it. Who would have thought that California’s governor Jerry Brown, who people once called Governor Moonbeam, would be a fiscal conservative in his second reincarnation as governor?
For the complete article.
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