Income Investor Perspectives

Independent municipal bond market insights for advisors

Month: December, 2016

Muni Catchup 12/19

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This week in The Muni Catchup:

  • Are Bonds Dangerous?
  • Looking Ahead
  • The Calendar
  • Muni Bond Data and Tables
  • The Bottom Line

Do you think bonds are dangerous? See this week’s Muni Catchup for my thoughts.

 

Thank you for reading The Muni Catchup–this is the last edition for the year.

Best wishes for a holiday season that is bright with joy and rich with memories.

Peace be with you,

Pat

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Muni Catchup 12/12

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The muni market out-performed the U.S. Treasury market last week and trading volume continues to be unseasonably heavy–not surprising given the heavy outflows from mutual funds, the large new issue calendar and yields that started the week at much cheaper levels than have been seen in a while.

The week ahead, however, brings a much smaller new issue calendar and of course the much-anticipated December FOMC meeting.

THIS WEEK’S INGREDIENTS:

  • It’s Fed Week Again!
  • The Muni Market is Less Illiquid!
  • Market Performance: Price Rally Follows the Yield Rally
  • Three Seasons: Fall is the New Summer
  • Muni Bond Fund Flows
  • Banks, Insurance Companies and Foreigners Big Buyers of Munis in Q3
  • The Calendar
  • Muni Market Data and Tables
  • The Bottom Line

Click here to read this week’s Muni Catchup.

This is not investment advice. The opinions expressed and the information contained herein are based on sources believed to be reliable, but accuracy or appropriateness is not guaranteed and are subject to change without notice. Past performance is interesting but is not a guarantee of future results. Investments in bonds are subject to gains/losses based on the level of interest rates, market conditions and credit quality of the issuer. Indices are not available for direct investment, although in some cases, there may be ETFs available designed to track some of the indices shown. The author does not provide investment, tax, legal or accounting advice. Investors should consult with their own advisor and fully understand their own situation when considering changes to their strategy, tactics or individual investments. Additional information available upon request.
©2016 Patrick F. Luby
All Rights Reserved

 

Muni Catchup 12-8

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Muni Holders: Timing is Everything

The latest data about muni bond ownership came out today, and in an example of unfortunate timing, in the third quarter (right before the recent increase in rates), individual investors reduced their direct ownership of munis by $6.5 billion, but increased indirect ownership though mutual funds by $13.5 billion. While individual bonds do go down in value when interest rates go up, because mutual funds are managed to maintain duration, it can take much longer for their NAVs to recover from a decline.

Other notable Q3 changes in municipal ownership:

  • Non-U.S. investors increased their holdings by $3.6 billion. (Not surprising given the negative interest rate world outside of the U.S.)
  • Insurance companies increased their holdings. Property and Casualty companies by $3.4 billion and Life companies by $1.8 billion.
  • ETFs increased by $1.4 billion. (But regular Catchup readers know that already.)
  • Non-muni bond mutual funds hold $17.0 in munis, a decline of $1.6 billion in the quarter, but still a significant increase from the $10.3 billion held at year-end 2015.
  • Bank ownership increased by $11.5 billion.
  • Money Market Mutual Fund holdings dropped by $57.4 billion. (This is not surprising, given the recent reform in Money Market Mutual Fund regulations.)

See next week’s Muni Catchup for more data and analysis on today’s numbers.

 

If you do not already subscribe to receive The Muni Catchup via e-mail, you should do so right now. The subscription form is below. As a reminder, there is no charge for The Muni Catchup, but if you find it helpful, you can help by sharing it.

The Muni Catchup is not investment advice. The opinions expressed and the information contained herein are based on sources believed to be reliable, but accuracy or appropriateness is not guaranteed and are subject to change without notice. Past performance is interesting but is not a guarantee of future results. Investments in bonds are subject to gains/losses based on the level of interest rates, market conditions and credit quality of the issuer. Indices are not available for direct investment, although in some cases, there may be ETFs available designed to track some of the indices shown. The author does not provide investment, tax, legal or accounting advice. Investors should consult with their own advisor and fully understand their own situation when considering changes to their strategy, tactics or individual investments. Additional information available upon request.
©2016 Patrick F. Luby
All Rights Reserved

 

Muni Catchup 12/5

catchup-bottle-1132-by-468THIS WEEK IN THE MUNI CATCHUP:

  • Yields and Buying are Up
  • Fund Flows: Mutual Funds Negative but ETFs Positive (slightly)
  • New Issue Supply Remains Heavy, but…
  • The Bottom Line
  • Muni Data Tables and Charts

Muni yields have moved higher very quickly. Is this a buying opportunity? Or should investors be selling?

While we generally remain cautious, current levels do appear to present a buying opportunity. However, investors are cautioned…

Click here to keep reading.

By the way, did you know that T.S. Eliot was wrong? If not, that means that you missed the November market recap. Here’s the link to it so you can go read it now.

If you do not already subscribe to receive The Muni Catchup via e-mail, you should do so right now. There are several special articles planned for the weeks ahead that you will not want to miss. The subscription form is below. As a reminder, there is no charge for The Muni Catchup, but if you find it helpful, you can help by sharing it.

 

The Muni Catchup is not investment advice. The opinions expressed and the information contained herein are based on sources believed to be reliable, but accuracy or appropriateness is not guaranteed and are subject to change without notice. Past performance is interesting but is not a guarantee of future results. Investments in bonds are subject to gains/losses based on the level of interest rates, market conditions and credit quality of the issuer. Indices are not available for direct investment, although in some cases, there may be ETFs available designed to track some of the indices shown. The author does not provide investment, tax, legal or accounting advice. Investors should consult with their own advisor and fully understand their own situation when considering changes to their strategy, tactics or individual investments. Additional information available upon request.
©2016 Patrick F. Luby
All Rights Reserved

 

 

Muni Catchup: T.S. Eliot Was Wrong

screen-shot-2016-07-11-at-6-50-17-amT.S. Eliot was wrong…November is the cruelest month. (At least it was this year.) Fixed income total return indices turned in the worst performance in a long time. Duration is no longer the investor’s friend.

  • But has the bond market sold off too much?
  • Are rates going to continue to go higher?
  • Or, could they go lower from here?
  • What happens if the various votes in Europe put pressure on the Euro? Will assets flow into U.S. Treasuries? What if the votes strengthen the position of the Euro?
  • How about munis? Mutual funds are losing assets while issuance remains heavy. Are munis going to cheapen further? How might tax reform affect yield ratios?

Clearly, much uncertainty continues to swirl around the markets.

The emotional reaction to the market turmoil might be to exit fixed income. But what would Ben Graham would do? I would expect that he would remind investors that the chances for long-term success are improved when emotion is eliminated from the investment decision-making process–decisions should be based on arithmetic not optimism (or fear). We encourage investors to take that advice to heart and to maintain their appropriate asset class exposure as determined by their plan, because no matter what you think is going to happen, it is possible that the opposite will happen. However, for those portfolios that are overweight duration, it is prudent to consider scaling it back. Using low duration fixed income ETFs can be one way to quickly do that.

Finally, in order to help reduce the risk of April being the cruelest month, use the remaining weeks of the year to harvest losses–especially from long-duration fixed income positions. Tax-loss swaps can be a helpful tool when seeking to adjust the portfolio duration.

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We are now using the AP Municipal Benchmark Curve, Powered by MBIS as our indicator of municipal market yields. The Associated Press (AP) – Municipal Bond Information Service (MBIS) U.S. Tax-Exempt Municipal Index covers the long-term tax-exempt municipal bond market and is based on actual trades and market quotes in the municipal bond market. The curve tracks the offered side of the market and includes smaller transaction sizes to reflect what individual investors may see in the market. The curve assumes 5% coupons with 10 year call protection. The curve is available to subscribers at http://www.mbis.com/apindex/ and is also distributed by The Associated Press to newspapers around the country.

Thanks For Reading

 

Pat

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This is not investment advice. The opinions expressed and the information contained herein are based on sources believed to be reliable, but accuracy or appropriateness is not guaranteed and are subject to change without notice. Past performance is interesting but is not a guarantee of future results. Investments in bonds are subject to gains/losses based on the level of interest rates, market conditions and credit quality of the issuer. Indices are not available for direct investment, although in some cases, there may be ETFs available designed to track some of the indices shown. The author does not provide investment, tax, legal or accounting advice. Investors should consult with their own advisor and fully understand their own situation when considering changes to their strategy, tactics or individual investments. Additional information available upon request.
©2016 Patrick F. Luby
All Rights Reserved

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