Continuing Municipal Bond Market Volatility – December 2010

Volatility in the municipal market was significant during the last quarter and we expect it to continue into the foreseeable future. The fourth quarter of 2010 was brutal period for total return oriented municipal bond investors. The Barclays Capital Municipal Bond Index declined 4% in the quarter with much of the loss occurring in the month of December. Municipal bond price declines were greater this past December than they have been in many years.

Contributing factors to the decline in bond prices and increase in bond yields during the month included:
      • Massive liquidations of bond fund holdings
      • A larger than normal supply of new issues
      • Non-renewal of the Build America Bonds program
      • Extension of the Bush-era tax brackets until 2012
      • General unease with municipal bond credit quality

    The collapse of municipal bond prices over the last two months of the year does have an upside for income oriented investors. Current market yields are higher today, and in most cases greater, than yields available one year ago for similar quality and maturity issues.

    For a deeper analysis of recent market volatility, please take the time to read my latest President’s Letter, A Bond Market in Turmoil, and discuss it with your Investment Specialist.


Bernardi Securities, Inc.
January 06, 2011


For more information, contact your Investment Specialist.

RELATED TOPICS: Build America Bonds, Credit Research

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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 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


01/06/2011

 














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