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:
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.