| 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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Munis prove resilient to fiscal pain |
FT.com - Dec. 11, 2009 - by Nicole Bullock
The $2,800bn municipal bond market, a key source of finance for US local governments, has had a banner year even as fiscal pressure mounts and lawmakers brace for more, painful belt tightening in 2010.
After multiple rounds of spending cuts, states are expected to face more than $350bn in deficits in the years 2010 and 2011, according to the Center on Budget and Policy Priorities. Yet municipal bonds this year are posting a totalreturn of nearly 15 per cent, which is the third best year in the past 20, according to a Merrill Lynch index.
"It is a testament to people's belief that munis are fundamentally safe," says Matt Fabian, managing director at Municipal Market Advisors, a research group.
Historically, the rate of default for "munis" has been a fraction of that for corporations for two main reasons: bond payments are high in the pecking order of bills for governments, typically ranking above vendors and even public assistance, and governments can raise taxes for debt service on general obligation bonds if revenues run short.
The market has benefited from lower supply this year thanks to federal subsidies for local governments to sell taxable debt, known as Build America Bonds, outside the traditional tax exempt muni market.
But demand has been strong, in spite of a steady flow of news about lay-offs, IOUs and shuttered schools, senior centres and prisons as governments struggle with falling tax revenues.
In the latest sign of growing trouble, on Tuesday, Moody's Investors Service cut its rating on $24bn in debt issued by the state of Illinois by one notch to A2, citing recurring deficits, concerns about cash and a chronically underfunded pension system.
Illinois is now the second-lowest rated state after California, which is rated Baa1. Its bonds fell, sending yields higher. Data from Thomson Reuters MMD put Illinois 10-year debt at 3.70 per cent from 3.55 per cent at the end of last week.
Also this week, New York Governor David Paterson said the state was withholding a percentage of payments to local school districts and governments to prevent it from ending December more than $1bn in the red. Its 10-year debt yields about 3 per cent.
Adding to the gloom, the UCLA Anderson School of Management forecast that unemployment in California will stay in the double digits to 2012. The state's 10-year debt yields roughly 4.30 per cent.
But yields in the broader municipal bond market have fallen even as public finances have steadily worsened across the country. Yields on top-rated 10-year debt are only about 2.70 per cent near a historical low hit earlier in the year, according to Thomson Reuters MMD.
In 2010, municipal bond issuance is expected to rise 8 per cent to a record $450.5bn, a survey by the Securities Industry and Financial Markets Association (Sifma) shows.
"Despite fiscal difficulties at the state and local levels, the strong issuance forecast underscores the market's appetite for municipal bonds," says Randy Snook, executive vice-president, business policy and practices at Sifma.
But investors' nerves - as well as long-standing assumptions on municipal finance - could be tested as governments are forced to make tough choices with less money.
"The key risk is that depleted cash due to sustained declines in revenue [taxes and other charges] won't be sufficient on a timely basis to cover high spending requirements that are politically difficult to cut as well as the growing burdens of fast rising liabilities like pensions," says Richard Ciccarone of McDonnell Investment Management.
"Yields that are too low won't cover the risk that market prices fall due to downgrades, as well as in more extreme cases, debt payments that are interrupted."
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