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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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Municipal Bonds Not As Safe As Brokers Say They Are |
DAiLY MARKET - July 29, 2010 - by Martin Hutchinson
Of the speculative excesses that misguided monetary policy and a prolonged recession has caused, the one that poses the most danger to investor wealth is the financial bubble in state and local municipal bonds.
Municipal bonds - usually referred to as “munis” - are very popular portfolio plays because of tax advantages that, in effect, enhance their rates of return. There’s also an allure because of their local nature: Investors can invest in specific bond issues that provided the money for projects such as schools, highways, bridges, hospitals or housing that actually affects the community in which the investor lives. That makes them a very tangible investment.
But there’s a problem.
State-and-local-government finances have taken a bigger beating during this economic downturn than during any other recession since World War II. Even worse, that beating came after the easy money available during this stretch encouraged those same governments to venture well beyond any reasonable limits in terms of their borrowing. They’re now stuck with a bigger-than-warranted debt load - which can’t be covered by the property tax stream that’s been reduced by record-level housing defaults.
The bottom line: At the present time, “munis” may not be the benign - or even alluring - investment that they’ve been in the past. In fact, thanks to continued fallout from the worst financial crisis since the Great Depression, some munis may be more akin to bombs than bonds - ticking away and just waiting to blow up your portfolio.
Broken Rules, Broken Budgets
Brokers will tell you that particular state and municipal bond issues are “safe,” meaning that they are rated highly by the rating agencies. However, the rating agencies got it wrong on subprime mortgage instruments, and it seems pretty clear that they are getting it wrong on states and municipalities.
Theoretically, state governments should not have this problem. All the states - with the sole exception of Vermont - have prohibitions against running budget deficits. Those prohibitions are in place for a reason: By avoiding deficits during healthy periods, the budgetary strain won’t be nearly as severe when tax receipts and other revenue drops off during a downturn.
Unfortunately, states have discovered various accounting dodges to get around the deficit prohibition, meaning the supposed safeguards aren’t all that tight.
The state “funding gap” for the fiscal year that began July 1 is $144 billion, which is 8% larger than the $133 billion shortfall for the just-concluded 2009-10 fiscal year.
But the outlook is actually going to get even worse: The federal stimulus spigot gets turned off in December, ending a flow of funds that states had been using to offset their revenue shortfalls and narrow their budget deficits. Make no mistake: The end of the stimulus money will leave a huge funding gap going forward.
In most cycles, energetic economic recovery rescues state budgets, although state budgets typically lag - for example the state budget gap peaked in 2004 after the 2000-2001 recession.
Given the poor current financial condition of so many of the U.S. states, a drawn-out/sluggish recovery - or even worse, a “double-dip” recession - could upend state finances for years to come.
For the complete article visit DAiLY MARKET
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