March 7, 2011
We have been hearing from clients concerned about recent volatility in the municipal bond market. Muni bonds don't get a lot of attention in the mainstream press, and for good reason: they're boring. They're typically steady, stable, and free of Federal and state income tax. Investors seeking those virtues in an investment have long sought muni bonds from us and it is a big part of our business.
But about Meredith. I'll admit I had never heard of her until I got a text message on December 19th, a Sunday night. A colleague was watching an analyst named Meredith Whitney on 60 Minutes as she predicted a "spate" of defaults among municipal bond issuers. It meant nothing to me, having stopped listening to Wall Street analysts about 20 years ago. But Ms. Whitney's high profile Chicken Little routine helped accelerate a price decline in the municipal bond market that seemed to get rolling late last fall with the Fed's "QEII" plan.
As muni bond prices declined, some investors panicked and sold. That's too bad for them, because the vast majority of municipal bonds continue to pay their steady tax free interest. The thanks part comes from the opportunity provided by lower prices. With prices down, yields are up. For investors buying good quality bonds, that means more money in their pocket (and less tax).
And for that I say: Thank You Meredith Whitney.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).