Municipal Market Review:
During the month of May, some fundamental value has returned to the market, thanks to a selloff in US Treasuries. The combination of stronger economic data and Chairman Bernanke’s hint that QE may be coming to an end caused yields to increase 20 to 40 basis points. Highlights are as follows:
- Long-term yields increased 35 bps (15 to 25 year bonds), while short-term yields have increased 20 to 30 bps (5 to 10 year bonds).
- Municipal bonds, as we would predict, outperformed the Libor Swap market in a rising rate environment, with rates increasing only 50% to 75% of taxable yields. Yet, this is enough to make municipal investors wary.
- Municipal Market Advisor Default Trends Analysis (data from MMA) shows the pace of defaults in 2013 is ahead of 2012. More specifically:
- 23 issuers for a par amount of $4.99 billion have defaulted as of May 31, 2013.
- 31 issuers for a par amount of $.80 billion had defaulted by this same time last year.
- There continues to be a lot of gossip in DC these days about tax reforms. From our sources, that is about all it is: Gossip! The chances at this point for any reforms having a big impact on munis are minimal.
Investment Strategy Review:
The month of May confirmed our belief in maintaining a defensive strategy during 2013. We are always on the alert for value and opportunities for our investors. The direction of the market over next couple weeks will be important in framing our outlook for munis this summer, as the supply and demand dynamic plays out.