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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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Headwinds Facing Muni Bonds |
Seeking Alpha - Sept. 29, 2011 - By Mike McDermott
In today’s zero interest rate environment, income investors are running out of options. Yields on treasuries have been compressed to historic lows. Bank CDs and deposit accounts aren’t generating enough income to cover account maintenance costs. And equity positions that pay dividends are becoming more risky as the economy stumbles.
This low yield environment isn’t an accident, of course…
The Fed has pushed rates down intentionally to force investors to put their capital to work in more “productive” areas. We’ll leave the logic of the Fed’s actions for a different discussion another day, but right now, let’s take a look at the effect this rate pressure is putting on the municipal bond market.
Municipal bonds have enjoyed a bull market over the past several quarters as investors plow capital into securities that are generating income. Muni’s have become especially attractive because their yields are significantly higher than treasuries, and the coupon payments for most muni bonds are exempt from income tax.
As more capital flows into this area, prices have been pushed higher, and of course yields have been forced lower. Today, 5-year municipal bond yields are close to 0.9% – a testament to the popularity of this asset class.
But despite the strong historical performance, a number of storm clouds are brewing. Over the weekend, the Wall Street Journal published an article titled Muni Bonds Seem Poised For Pain. The risks are mounting and while the muni market is still holding up well, there is a bearish case building which could set up an attractive short opportunity in the near future.
There are essentially four bearish issues with potential to derail the positive trend in municipal bonds. Keep in mind that unlike equities, fixed income products have a theoretical maximum value (principal plus expected interest payments) while the downside risk can still be material (perceived risk of default, or higher rate environment).
If one or more of these issues rises to the forefront, investors could quickly exit the market, sending muni prices sharply lower…
For the complete article.
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| Stuff to look at |
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| BondsOnline Advisor |
Income Security Recommendation January 2013 Issue.
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