Monday Muni Filter

by PL

I love my Bose noise cancelling headphones…they do a great job of filering out extraneous noise so I can concentrate of what I want to be hearing. While my headphones don’t work with ideas, the idea of cancelling out the noise is a helpful one. Here are some ideas I’d like to share with you that I think can get lost amindst the noise of this week but shouldn’t.

As usual, this week will be chock full of news and distractions: it’s the last week of the month, short-term UST yields have moved higher (a little), the FOMC meets this week, there are more primaries, we’ll probably hear more about Puerto Rico and equity earnings season continues with over 1,200 pubic companies announcing earnings this week (according to Zacks).

If you’re active in the muni bond market–either via bonds, mutual funds, ETFs or SMAs, it can be helpful to take a step back from the commotion and filter out the noise.

What do you really need to know to start your week? Here are a couple of items to start with.

RISKS: Bond investors are familiar with how to evaluate and manage credit risk, interest rate risk, issuer concentration risk, reinvestment risk, etc. But I have long argued that the last years have seen an increase in two sources of risk that are very difficult for investors to measure or manage: political risk and liquidity risk.

If you missed it, you should be sure to see this story from The New York Times, Municipal Bond Defaults Shake Up a Once-Sedate Market.

[The article quotes John Bonnell, a portfolio manager at USAA] that investors also needed to bear in mind political changes in the municipalities themselves.

“When it comes to the willingness to pay part, the officials you bought that bond from might be totally different 10 years from now,” he said. “It’s hard to predict with a 30-year bond.”

Liquidity risks: in the muni market, liquidity and tradeablity can vary between bonds and are subject to chaneg with market conditions. Be sure you’ve read my article on the topic here.

Seeking Alpha ran an article last week with my explanation of the upcoming Hundred Billion Dollar Muni Summer redemption season.

And finally, here is this week’s market context for you to print out and hang next to your computer.

Do you need something else? Let me know! Check my “About” page to learn how else I may be able to help you.

Have a great week,