Stars aligning against munis at year-end

Tax talk, new issues, profit-taking spark sell off, roil the market

Dec 18, 2012 @ 3:21 pm

By Dan Jamieson

Muni bonds have been hit hard in the last few days, making these staid investments rather treacherous at least for the short term.

Normal year-end housecleaning by bond dealers, a large new-issue calendar, talk in Washington about limiting municipals' tax exemption, a downgrade of Puerto Rico, a bump-up in rates and finally, some profit-taking by investors, have contributed to a sell-off over the past week or so.

“There are a lot of bonds moving around [but] it's very weak on the bid side” since dealers don't want to take on inventory, said Matt Fabian, managing director at Municipal Market Advisors Inc.

“It's the end of year, and a lot of dealers are … apprehensive about buying too many bonds and taking them into the New Year. That's normal,” added Kenneth Naehu, head of fixed Income at Bel Air Investment Advisors LLC.

“At the same time you've had a pullback in rates — 20 basis points on the [10-year] Treasury,” Mr. Naehu said, which has hit munis even harder.

In addition, more than $10 billion of new issues came to market last week.

That's a large amount, Mr. Fabian said, especially when big buyers aren't participating.

Continued talk in Washington about limiting the tax exemption enjoyed by municipal debt combined with a downgrade of Puerto Rico last Thursday contributed to the skittish market.

The largest muni bond ETF, the iShares National AMT-Free Muni Bond ETF (MUB), fell 1.17% last Friday, another 0.81% Monday, and was down about a half point again Tuesday.

The fund tracks the investment grade segment of the U.S. municipal market.

“We're starting to see some bargain hunters today,” Mr. Naehu said.

Municipals had been overbought, he added, and with “a bit of bubble in the marketplace, you're going to have some of these pullbacks.”

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Cameras roll at Best Places to Work for Financial Advisers' awards

Advisory firm winners on the top 50 InvestmentNews list of Best Places to Work for Financial Advisers explain the significance of this recognition at the Chicago awards event.

Latest news & opinion

RIA in a Box acquired by private equity firm Aquiline Capital

New owners plan more growth for the software service provider.

IBDs with the most female reps

Here are the 10 independent-broker dealers that have the most female reps.

Supreme Court decision likely to prevent brokers from filing class-action lawsuits

However, it likely won't bar employees from filing 401(k) lawsuits against their employers.

5th Circuit denies states' second attempt to defend DOL fiduciary rule

The three-judge panel split again, 2-1, in deciding not to take another look at the motion to intervene by California, New York and Oregon.

Pass-through tax strategies for business-owner clients

Shifting business structure, changing filing status and spinning off equipment are examples of ways business owners can take advantage of the deduction.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print