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astroturf
Joined: 26 Aug 2007
Posts: 548
Location: Greater NYC Area
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 Posted: Tue Mar 04, 2008 2:49 pm Post subject: Muni demand picking up |
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Yesterday finally saw the munis break their downward spiral and move in sync with treasuries. Did we see the bottom Friday? Possible, but no one can tell for sure. Bill Gross put his money where his mouth is, so he bought quite a bit. But there are other bargain hunter buyers coming in. From the blog Accrued Interest: What the hell is going on with munis?
| Quote: | Friday it was possible to buy 5-year pre-refunded municipals (which are backed by Treasury bonds held in escrow) at yields in the 3.50's. In other words, around 80bps higher than Treasury rates. That is literally Treasury credit at a 80bps spread to Treasuries tax-exempt. Dozens of large new issue municipal deals came at significant spreads to Treasury rates.
The hedge funds are smelling blood in the water, and are moving in quickly. I've heard from multiple sources that non-traditional muni buyers, from hedge funds to taxable bond investors, lifted everything in the street yesterday. That's good news and bad news of course. It means that the muni market is indeed clearing. But it also means that muni rates can't move substantially lower (at least versus Treasury rates) until we get through this glut of new issue supply created by auction-rate refinancings and arb selling. These vulture investors don't really represent new demand for munis long-term, merely that if the street is going to absolutely give away municipals, there are buyers who will take them.
A trader I talked to today told one of his hedge fund clients that municipals were feeling like a falling knife. The customer responded that the ABX index was a falling knife. This is at worst a butter knife. |
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allenmickers
Joined: 11 Feb 2008
Posts: 427
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| Posted: Tue Mar 04, 2008 2:56 pm Post subject: |
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| I put everything I could possibly get my hands on friday and put $10k into munis. So far up $150 in a few days. I have a feeling I could be up a few hundred dollars by the end of the month (3 to 4% boost in NAV plus 2 - monthly tax exempt dividends since I bought on the day before the ex-dividend day for March) |
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peter71
Joined: 24 Jul 2007
Posts: 3247
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| Posted: Tue Mar 04, 2008 3:00 pm Post subject: |
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interesting link -- i'd never heard "falling butter knife" before!  |
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astroturf
Joined: 26 Aug 2007
Posts: 548
Location: Greater NYC Area
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| Posted: Tue Mar 04, 2008 7:03 pm Post subject: |
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| Just checked lt tax exempt muni bond funds and they went up around 1% today. So yesterday's move was not a fluke. Increased demand is at play. |
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allenmickers
Joined: 11 Feb 2008
Posts: 427
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| Posted: Tue Mar 04, 2008 7:08 pm Post subject: |
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| astroturf wrote: | | Just checked lt tax exempt muni bond funds and they went up around 1% today. So yesterday's move was not a fluke. Increased demand is at play. |
They went up 1% on Monday and 1% today, and will likely go up 1% tomorrow, and possibly another 1/2 to full percent up within a week after that until it catches up to Treasury Rate / 0.75 where it will be the tax equivalent to someone in the 25% bracket. |
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ChosenGSR
Joined: 19 Sep 2007
Posts: 65
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| Posted: Tue Mar 04, 2008 8:44 pm Post subject: |
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Too bad I missed it, I have 70k sitting in tax exempt mm  |
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rickster52fl
Joined: 09 Mar 2007
Posts: 182
Location: s.florida/n.carolina
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| Posted: Tue Mar 04, 2008 9:01 pm Post subject: |
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ChosenGSR,
It's virtually impossible to predict the low for any stock or mutual fund; if a muni bond fund is appropriate for your asset allocation, this is a very good (some, like Bill Gross, say historic!) time to buy, or "average in" due to the overdone recent selloff. If interest rates continue to fall, your tax-exempt money market fund will likely decline in yield, making the muni bond fund still very attractive at current levels.
Rick |
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