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Municipal Market
Attractive for Some, Challenging for Others – January
2010
Municipal bond yields ended the month at higher levels
than where they began the month, resulting in a negative
monthly total return number for most portfolios. This
decline in portfolio value was more pronounced on higher
duration portfolios and bond funds as you would expect.
The higher municipal bond yields resulted from:
- The continuing sell-off in the U.S. Treasury bond
market
- Massive redemptions of municipal bond funds
- General apprehension of municipal credits
The continuing unease that currently pervades the municipal
marketplace was fueled in part by Congressional discussions
on the merits of introducing legislation that allows
states to file for bankruptcy. New issue volume declined
significantly and this factor prevented prices from
falling further and, in fact, contributed to a rebound
in bond prices over the final 7 to 10 days of the month.
The run up in bond prices at the end of the month, however,
was not enough to offset the earlier losses.
The market remains volatile in the New Year. Liquidity
is generally thin and sporadic – depending greatly
on the specific issue out for bid, the almost daily
rumors out of Washington D.C. and apocalyptic predictions
about municipal bonds. Expect more of the same until
we have some clarity on possible legislation affecting
the marketplace. These factors make the municipal bond
market attractive for income oriented portfolios, but
challenging for total return investors.
Bankrupt Vallejo, California continued its march towards
solvency and filed a restructuring plan with the court
overseeing its Chapter 9 proceedings. It is a complicated
plan without question, and certain creditors will have
to absorb different percentages of haircuts on their
claims. Municipal debt holders, however,
are treated favorably per the plan and that is a significant
development in our view.
Ronald P. Bernardi
President and CEO
Bernardi Securities, Inc.
February 2,2011
For more information, contact
your Investment Specialist.
RELATED TOPICS: Interest
Rates, Portfolio
Liquidity
Return
to Research & Resources Overview
This document has been
prepared by Bernardi Securities, Inc. (BSI) for our
clients and other interested parties. Within this document,
we may express opinions about the direction of financial
markets, investment sectors, trends, and taxes. These
opinions should not be considered predictions of future
results, and are subject to change at any time. Past
performance is not indicative of future returns. Nothing
in this document represents a recommendation of any
particular strategy, security or investment product.
This information is provided for educational purposes
only and was obtained from sources considered reliable,
but is not guaranteed and not necessarily complete.
BSI offerings are made by prospectus or official statement
only. Income may be subject to state and local taxes
and the federal alternative minimum tax. Additional
risks associated with investing in municipal bonds include
credit risk, interest rate risk, and reinvestment risk.
Please consult your tax professional regarding the suitability
of tax-free investing. Please consult your investment
specialist for more information.
Municipal
bonds not FDIC insured * May lose principal * Not appropriate
for all investors
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