Health, Myths, Fraud and the Crisis

The Muni Market

Municipal bonds suffered a remarkable sell off in the last two weeks. Is this the top in Muni bonds and the beginning of  a long-term rise in interest rates?

Here are two girls with very different opinions on the matter:

First Meredith:

Meredith Whitney Advisory Group is now predicting dramatic declines in US home prices, large layoffs at US banks and widespread defaults in the municipal bond market:  Link Video FT


but Bond Girl offers a very different explanation :

Some thoughts on the muni market

2010-11-19 00:06  My opinion, for whatever it is worth to you, is that there are a handful of factors – mostly unrelated to the relative creditworthiness of muni issuers – that have provoked this correction.  These factors are related, and they will likely contribute to volatility going into next year.  The first, obviously, is a supply glut.  The pending expiration of the Build America Bond (BAB) program has pulled supply forward, and this is going to seesaw over the next several weeks.  Since the BAB program was initiated, most issuers have structured their new issues with the sense that they will go to either the tax-exempt or taxable market, whichever is more advantageous at the time.  It has been almost completely a supply management game since the market for these bonds was established and munis became truly bifurcated.
Well, maybe it was just a coincidence that the plunge in Muni Bonds  started with the official bankruptcy of AMBAC, the bond insurer … Bond Girl ?

and on a different issue Bond Girl wrote:

NRSROs, barriers to entry, and the ways we lie to ourselves

Bond Girl 2010-11-20 12:54

At the risk of seeming petty, I am going to write yet another post slamming Meredith Whitney.  If you are patient, however, you will find it is not really about Whitney at all.  So… Be patient.

You likely recall that Whitney had all of the talking heads on financial news programs captivated back in September when she announced that, after two years of research, she had produced her own ratings for the largest 15 state credits in the muni market.  She said her firm had prepared a 600-page report revealing that some states were likely to default on their obligations and would need a massive federal bailout.  The report, naturally, was made available to clients, but was not published (and therefore not able to be vetted) – yet this did not stop various tongue-waggers from assuming that because the report was reputedly long that it also represented good research.

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