BlackRock sees muni glass as half full

If municipal bond investors can stomach continued negative headlines — and some defaults over the next few months — they will find some compelling investment opportunities, BlackRock Inc. executives said last Thursday at a press gathering. Specifically, the firm sees investing opportunities in debt issued by state and local governments, hospitals and higher education, as well as some water and sewer utilities. Municipal bond funds have suffered from $25 billion in net outflows over the past 14 weeks. Negative headlines will continue, said Peter Hayes, managing director and head of municipal bonds at BlackRock. “The headlines are going to continue to be negative over the next three to six months,” he said. Sparking those headlines will be some defaults, but they won't be widespread, said Joseph Pangallozzi, a director and credit research analyst on the municipal investment team at BlackRock. Year-over-year state revenue was up 7% as of the fourth quarter, according to the Nelson A. Rockefeller Institute of Government. “This is not an environment where you are going to see a cascade of defaults,” Mr. Pangallozzi said. There will be defaults in some areas, however, such as legacy manufacturing and midsize cities where the housing boom got out of control, he said. “You can guess that a good number of Florida dirt bonds will have problems,” he said. But there are also plenty of investing opportunities, Mr. Pangallozzi said. Specifically, BlackRock sees opportunities among state bond issuers. “There are 20 states pushing for pension reform,” he said. “None of the 50 states are going to default.” “The market is very broad,” he said. E-mail Jessica Toonkel at [email protected].