Warning from Muni land

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rickets's picture
rickets
Status: Silver Member (Offline)
Joined: Jun 8 2009
Posts: 238
Warning from Muni land

Just wanted to give a heads up on some market moves not being covered in the media right now.  Municipal bonds are getting absolultely killed right now.  ETFs to look at include MUB and PCK to give you flavor if you like charts.

These moves are huge, and the amounts of money involved massive.  The supply coming to market in the short term is massive and we could see some funding issues finally hitting the states.

 

 

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: Warning from Muni land

Thanks for the heads-up. I think I just lost my appetite for lunch. MUB is exhibiting the highest volatility since Sep. 2008. This is one monster-ugly chart:

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=mub&sid=0&o_symb=mub&freq=1&time=9

Is this what they used to call 'informed selling'? Surprised

Lemonyellowschwin's picture
Lemonyellowschwin
Status: Platinum Member (Offline)
Joined: Apr 22 2008
Posts: 547
Re: Warning from Muni land

Rickets, Machine, someone else, can you give us a thumbnail of the implications of this?

JAG's picture
JAG
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: Warning from Muni land

I saw this chart in Hussman's latest commentary, The Cliff....California Dreaming...Ouch!

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Re: Warning from Muni land

Nobody knows for sure. But in Sep. 2008, munis took fright (along with everything else except Treasuries) because of credit fears connected to the Lehman crisis. Vulnerable markets such as commercial paper 'seized up,' and there was a worry that all markets would grind to a halt.

California claims its sale of $10 billion in revenue anticipation notes is going well. But the market acts like something has changed for the worse, quite suddenly. 

For the moment, it's 'sell now, find out the reason later.'

rickets's picture
rickets
Status: Silver Member (Offline)
Joined: Jun 8 2009
Posts: 238
Re: Warning from Muni land

The most common reason for the sell off being discussed on muni trading desks is political wrangling over Build America Bonds since the election.  Basicaly, the federal government has been subsidizing munis and that might be coming to an abrupt halt.  AKA - reality is setting in - - that without federal backstops interest rates should be WAY higher.

Looking foward - the cause effect chain here is simple:  austerity and or higher taxes at the state level = higher unemployment, slower velocity of money, contraction.

On a slightly different note - - - I have been thinking of the Feds recent QE2, and while I hate the whole idea behind it and dont support the fed, I must say if they foresaw (or had info about) Europe imploding this past week they just timed the printing (announcement anyway) at the best moment possible.....right before they knew the world would be piling out of the Euro into the Dollar. 

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5569
Re: Warning from Muni land

Oh, and hey, don't forget about the AMBAC bankruptcy...to me that was the trigger for the muni sell-off.  

I guess the reasoning is that insured bonds are worth more than uninsured bonds.  Who could have predicted that?

Now that they are selling off like this, I suppose the "sell now, ask later" reason is as good as any...

Johnson's picture
Johnson
Status: Member (Offline)
Joined: Aug 26 2009
Posts: 20
Re: Warning from Muni land

Some of our more sophisticated clients had been shorting many of the Closed-end  Muni funds because they saw a major discrepency in the actual price of thinly traded bonds compared to the index that many of these managers use to price their inventory.   Covered their shorts yesterday.  Interestingly, many CEF showed a market value at 8% or more discounted from NAV.  Our guess is that the tru pricing  probably should even this out.

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