Tags: Muni | Market | Freezes | Investors | Flee

Muni-Bond Market Freezes Up as Investors Flee

Tuesday, 29 Mar 2011 10:00 AM

A massive wave of defaults in the U.S. municipal bond market never materialized, but fears of such have sent investors scurrying from local debt and freezing up the market in the process, experts say.

The first quarter of 2011 will record the lowest amount of quarterly new issuance in more than a decade at $44 billion, The Financial Times reports, adding the amount raised will be less than half the new bonds sold during the same time in 2010.

"We have gone through weeks of concern about the creditworthiness of state and local governments and that has made investors, particularly individuals, skittish and they have taken their money out," Richard Ciccarone, managing director at McDonnell Investment Management, which buys municipal bonds, tells the Financial Times.

bonds250.jpg
Individual investors make up a big chunk of the municipal bond market.
Since individual investors make up a big chunk of the municipal bond market, blockbuster bond issuances are often needed to set prices and bring investors in.

Plus states and municipalities are cutting expenditures and raising taxes to cover spending gaps, which lessens the need to sell fresh debt.

The decline may also be attributed to the Build America Bond program at the end of last year, part of the stimulus package that prompted debt issuers to race to the market and sell bonds they would have normally sold in the first quarter of this year.

"The main reason [for the current low levels] is the pop in the fourth quarter of last year," Craig Elder, senior fixed income analyst at Robert W. Baird & Co., tells CNNMoney.com. "We crammed in $133 billion over the last quarter."

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A massive wave of defaults in the U.S. municipal bond market never materialized, but fears of such have sent investors scurrying from local debt and freezing up the market in the process, experts say. The first quarter of 2011 will record the lowest amount of quarterly new...
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2011-00-29
Tuesday, 29 Mar 2011 10:00 AM
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