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Calmer, Bullish
Municipal Market: Opportunities Amongst Problems –
May 2011
Municipal bond prices continued their
upward move during May resulting in lower yields across
the maturity spectrum at month end. A calmer tone to our
marketplace has set in over the past two months as much
of the selling hysteria earlier in the year has subsided.
Bullish market emerges in calm after the storm
This moderating dynamic, coupled with a significantly
reduced supply of new issue transactions and lower U.S.
Treasury bond yields in recent weeks has resulted in
a bullish municipal bond market. June reinvestment demands
total a fairly significant sum, so absent a sizable
sell off in Treasury bond prices, we expect non-taxable
municipal bond indices to maintain much of their year-to-date
gains.
State revenues improved for fifth consecutive
quarter
Generally, state revenue collection year to date continues
to exceed budgeted projections and fiscal situations
are improved from last year. The Rockefeller Institute
of Government reported
that tax revenues rose by over 9% in the first quarter.
This is the fifth consecutive quarter of state revenue
growth. California, Michigan, Pennsylvania, New Jersey
and Texas all recently reported greater than budgeted
revenue collection numbers. New York approved its annual
budget on March 31st before the beginning of its fiscal
year starting April 1st and reduced expenditures by
approximately 2.5%. This is the first time since 2006
the state has approved its budget before the start of
the fiscal year and the first time since 1995 it has
reduced expenditures.
Liquidity challenges still good for some, bad
for others
Market liquidity remains a challenge depending greatly
on the idiosyncrasy of the specific credit up for sale.
We have discussed this topic at length in earlier
publications and do not expect this to change anytime
soon. Its presence will continue to create problems
for certain investors and opportunities for others.
As always, we believe that diligent, independent credit
research is the key to knowing and capitalizing
on the difference.
Ronald P. Bernardi
President and CEO
Bernardi Securities, Inc.
June 2, 2011
For more information, contact
your Investment Specialist.
RELATED TOPICS: Municipal
Default & Disclosure, 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
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