Muni Market In 'Fever Pitch' As Investors Can't Buy Fast Enough

Ted

FYI: (This is a follow-up article.)

Congress has set off a feeding frenzy for municipal bonds.
Investors are rushing to buy debt being issued by state and local governments, leaving banks with far more orders than they can fill, despite a potentially record-setting flood of new sales this month. Some firms are borrowing so they can purchase more. And even cash from overseas is coming into a market dominated by Americans seeking income that’s exempt from federal taxes.
Regards,
Ted
https://www.fa-mag.com/news/muni-market-in--fever-pitch--as-investors-can-t-buy-fast-enough-36079.html?print

AndyJ

Muni bellwether ETFs MUB and HYD are taking a beating today; the feeding frenzy may be at least short-term overbought.

bee

I wonder how this plays out for balance funds like USBLX or VTMFX that hold 50% Muni/ 50% S&P 500...buying opportunity?

Will these Tax managed Funds be harmed by the tax reform as well?

Edmond

They will probably be HELPED too.. just like stocks have been HELPED since DJT took the reins.

hank

I’m skeptical of financial journalism when I see loaded terms like “wall of money”, “fever pitch”, “spree” ...

I get the point that munis are more in demand than a month earlier. As someone who stepped gingerly into a couple muni funds 6 or 7 months ago (PRFHX, PRFSX) I can tell you the action has been decidedly undramatic. The former has picked up a couple percent over that time. The latter has gone slightly under water since I bought.

No discussion of munis would be complete without attention to (1) a generally long-lasting overbought condition of bonds in general (going back decades), (2) a generally long-lasting overbought condition of high yield bonds (going back to post-2008), a rapidly flattening yield curve that is making shorter duration bonds increasingly attractive relative to longer duration bonds and (4) a frothy equity market that is causing investors to seek shelter - even in low yielding fixed income instruments.

hank

Edmond said:

They will probably be HELPED too.. just like stocks have been HELPED since DJT took the reins.

I’m more inclined to say, “God help us.”

bee

hmm...no mention of PR, FL, TX, CA and the other US islands working overtime printing new muni issues for muni reconstruction?

Here's a chart of three muni funds I follow. As @hank mentions...price action LT / IT (USTEX & USATX) muni should be dropping in price below ST (USSTX). I just don't see it here on this 5 year chart. I include @AndyJ's etfs (MUB or HYD).

Old_Skeet

I added, for me, a double tax free muni fund (FMINX) to my income sleeve a few years back. Since, then I have been buying about every six months (late fall and early spring) as part of my seasonal investment strategy. Seems bond funds are the weakest during this period while stocks seem to be the strongest. For me, my tax equilvent yield is a little above 4% while the 10 Year Treasury is currnetly paying just short of 2.4%. This in of itself explains, in part, why they are in such demand.