Municipal Market
Progresses Unevenly – October 2011
The municipal bond market showed more signs of progress
in October, albeit unevenly – a persistent market
narrative that creates opportunities for the disciplined
and informed.
State revenues growing despite property tax declines
The macro economic picture for state governments generally
continued to move in a positive direction as tax revenues
saw double-digit growth (10.8%) year over year in the
second quarter, according to the Rockefeller
Institute. This was slightly revised from the preliminary
number we mentioned in our August
commentary. The growth resulted primarily from an
increase in income and sales taxes, although total states’
revenues lag behind 2008 totals for this same period.
Local governments continue to see property
tax revenue decline from prior periods. In the second
quarter, property tax revenues fell 1% year over year,
per the Rockefeller report. Local property tax receipts
have fallen for the last few quarters forcing local governmental
units to pare their budgets. This trend will continue
in the months ahead.
Municipal market still attractive for some, challenging
for others
Municipal bond yields moved slightly higher in the latter
part of October. An increasing new issue supply added
to dealer inventories as investor demand flattened a bit
from prior weeks. Market liquidity
is a challenge at times, especially for average and weaker
credits. This dynamic will not change soon, in our view,
and generally is a negative for total return investors
and a positive for the income oriented investor.
Chicago shows leadership on municipal financial
challenges
Timely and complete municipal
disclosure is slowly improving, but much work is yet
to be done in this area.
Two weeks ago, I attended the City of Chicago’s
first Chicago
Investor Conference – which was also a first
for me in over 30 years in the municipal bond industry.
To my knowledge, I do not recall a municipal issuer hosting
such a forum designed to inform investors and other industry
stakeholders on the state of operations and finances.
Mayor Emanuel spoke openly about how the city is trying
to deal with the critical issues of improving operational
efficiencies, union pensions, lengthening the school day
and the effect of state finances on the city’s budget.
Clearly, the city has financial challenges
in front of it, but this event is a positive signal to
the marketplace and a message to other issuers of what
is needed and expected by investors today. I applaud Chicago
for showing leadership on this critical issue.
Ronald P. Bernardi
President and CEO
Bernardi Securities, Inc.
November 1, 2011
RELATED TOPICS:
Municipal
Default & Disclosure, Portfolio
Liquidity
Return
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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
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performance is not indicative of future returns. Nothing
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risks associated with investing in municipal bonds include
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Municipal
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