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| BondsOnline.com: instant access to and extensive coverage of over 3.5 million stocks, bonds, indexes and other securities covering major and emerging markets and exchanges across the globe. |
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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
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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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Buy Gulf Coast Bonds When Oil Spill Reduces Prices |
Bloomberg - May 28, 2010 - by Joe Mysak
Oil-soaked pelicans and sick sea- turtles may accomplish what earthquakes and hurricanes failed to do in the past to municipal bond prices: make them go down.
It is almost axiomatic in the municipal market that bond prices don’t react to news. Default is often the only thing that leads to discount. Investors so far haven’t dumped the bonds of those Florida, Alabama, Mississippi and Louisiana cities and towns at most risk from the Deepwater Horizon disaster on April 20, according to Municipal Securities Rulemaking Board records.
Just wait. Prices will drop as the modern municipal market’s first slow-motion environmental calamity plays out over weeks and months. A buying opportunity will follow as investors see the spill won’t play much havoc with muni finances.
Blame the bloggers. Blame television prognosticators. Blame the 24-hour news cycle. The barrage of pictures, headlines and dire forecasts is going to make it very hard for individual bondholders to keep cool.
The heart-rending pictures of oil-sodden wildlife and befouled beaches will be bad enough. When the bloggers start running out headlines like, “The 20 Gulf Cities That Will NEVER Recover,” then bond prices will falter.
Individual investors buy municipal bonds for preservation of capital and tax-free income. They are the investment of choice for the risk-averse.
I can understand why millions of gallons of oil may cause bondholders to sell their Gulf Coast bonds as soon as they can.
Vulture Strategy
The vulture strategy here is to buy such debt at prices in the 70 cent range and do what most bond buyers do: hold them until maturity or resell them when their prices rebound.
This takes a certain taste for adventure, and credit research. It also makes the most sense in the current situation.
The only things we know right now about the disaster in the Gulf are that 1: The oil leak will be turned off and the well will be capped. And 2: The cleanup will begin.
Those are the two things we know. Companies shut down wells all the time. The Deepwater Horizon wreck presents special challenges because it is 5,000 feet underwater. It may take two more months, but the well will be shut down.
Then the cleanup will begin. How thorough it will be is unknown. Almost everything about this event falls into the “unknown” category. Keep that in mind as you watch various talking heads on television make their provocative and unfounded comments in the days ahead. There is always a bull market in hysterical pronouncements.
Environmental Mess
The important thing to remember about the Deepwater Horizon disaster is that it is environmental, not economic.
“While the oil spill will undoubtedly have a significant and lasting impact on fishing, tourism and the environment in the affected areas of the state, we believe that the effect on the state’s overall economy will be relatively modest,” Standard & Poor’s said in a May 17 piece titled, “Louisiana’s ‘AA-’ Rating Is Unaffected by Gulf Oil Spill.”
“It appears that the long-term economic and financial impact on the states of Louisiana, Mississippi and Alabama will be manageable,” Moody’s Investors Service said in a report published this month.
“The short-term economic boom related to clean-up efforts will likely give way over the longer term to deteriorating revenue for coastal communities,” in the form of declining property taxes, said Moody’s.
What buyers of distressed Gulf Coast debt are betting on is the future viability of the region.
They are betting that the Gulf of Mexico isn’t going to turn into a cauldron of death, and that people will still want to live along the coast there or visit.
They are betting that not everyone in places such as Plaquemines Parish, Louisiana, and Gulfport, Mississippi, is going to move away.
They are betting that tourists will continue to visit Gulf Shores, Alabama, and that the lifestyle in Okaloosa County, Florida, will attract new residents.
There is life after oil spills. Investors should know that.
--Editors: David Henry, David Clarke.
Click on the “Send Comment” in the sidebar display to send a letter to the editor.
To contact the writer of this column: Joe Mysak in New York at jmysakjr@bloomberg.net
To contact the editor responsible for this column: David Henry at dhenry2@bloomberg.net
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