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Bloodbath in Muni Bond Funds: Will It Continue?

  • Written by Syndicated Publisher 43 Comments43 Comments Comments
    December 16, 2010

    My first thought is good grief, how many freakin’ muni funds does one need? Nuveen offers at least 10 different ways to invest in munis. That is just Nuveen. Is there a bubble in the number of muni funds?

    Reasons for the Muni Selloff

    1. Unwinding of the “sure-thing” Quantitative Easing trade
    2. Selloff in bonds in general because of budget and inflation concerns
    3. End of the Build America Bond program (BABs)
    4. Increasing default risk

    Of the above reasons, 3 and 4 are the most important on intermediate and ongoing basis.

    BABs was excluded from Obama’s compromise tax proposal. Hopefully it stays that way. I discussed why in Time to Kill Build America Bonds (BABs)

    The short version is “Taxpayers are already on the hook for hundreds of billions of dollars of Fannie Mae and Freddie Mac debt. We should not extend the insanity to government guarantees of municipal bonds”

    However, now that the government guarantee is gone, yields are poised to rise, especially with increased default risk rising.

    To read the rest of the article click on the below link;

    Bloodbath in Muni Bond Funds; Reasons for the Muni Selloff; Will it Continue?.