Market meltdown spreads to municipals

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investorzzo's picture
Status: Diamond Member (Offline)
Joined: Nov 7 2008
Posts: 1182
Market meltdown spreads to municipals

THE MUNICIPAL-BOND MARKET suffered a virtual meltdown at the end of last week, sending yields of top-quality tax-exempt securities to levels equivalent to corporate junk bonds.

In a scenario reminiscent of the debacles in exotic mortgage-backed securities last summer or Long Term Asset Management in 1998, hedge funds were forced to dump munis at fire-sale prices.


Here is an overview of municipal debt holders, according to the Federal Reserve Flow of Funds report for the first quarter of this year:
Households: $1 trillion
Mutual funds: $500 billion
Insurance companies: $372 billion
Money market mutual funds: $368 billion
Commercial banks: $220 billion

RW's picture
Status: Member (Offline)
Joined: Aug 25 2009
Posts: 15
Re: Market meltdown spreads to municipals


Thanks for your post, I had not seen this news. 

A question to you or anyone else out there: are there risks for municipal money market funds right now that are different from sovereign debt default or devaluation of USD? We learned our lesson the hard way about bond funds a while back. But I wonder how many people are sitting with supposed 'safe' cash in these muni money market funds? are we missing an extra layer of risk somewhere?  

Just today I was looking at opening a Treasury Direct account so as to invest in 4 week T-bills.  I'm wondering if the time is drawing nigh?



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