Municipal Market Review
The Municipal market is working on finding its “balance”. Scales continue to tip back and forth from good to bad due to the following:
- Yield levels are low, with duration risk high, yet, given new tax rates, value versus other fixed income classes is good.
- Potential legislation risk is low, but could be very damaging to the value of municipal bonds.
- Supply & demand prospect in the long-run are very bullish, yet bearish in the short-run due to seasonal effect.
What is an investor to do? Municipal bonds have started out 2013 with very little changes in yields and the market has been quiet. More specifically from January 31, 2013 to February 28, 2013:
- 10 year muni rates decreased 1 bp, underperforming the Libor market which decreased 4 bps.
- 25 year muni rates decreased 4 bps, underperforming the Libor market which decreased 5 bps.
Is this the calm before the storm?