Tags: Municipal | Bond | Investors | Ignore | Danger | Signs

Municipal Bond Investors Ignore Danger Signs

By Dan Weil   |   Monday, 21 Jun 2010 09:23 AM

The bull market in municipal bonds continues to roll merrily along, as investors ignore some very bearish signals.

Experts warn that cities as large as Los Angeles may go belly-up. Harrisburg, Pa., is thinking about filing for bankruptcy, and Central Falls, R.I., which bills itself as “a city with a bright future,” is trying to turn its finances over to a receiver to solve its debt woes.

Still, the Merrill Lynch Municipal Master Index has gained 9 percent during the past year.

With municipalities across the country having promised more in retirement and health benefits to public workers than they can afford to pay for, debt burdens are mushrooming. And that could lead to defaults, experts warn.

"The day of reckoning is here," Jeffrey Schoenfeld, chief investment officer of Brown Brothers Harriman, told the Wall Street Journal.

"But municipal investors continue to act as if there's no default risk in municipal bonds."

To be sure, just 223 out of more than 40,000 municipal issuers defaulted on their debt payments in the past year, Matt Fabian, managing director of consulting firm Municipal Market Advisors, told the Journal.

But things are looking worse now, and investment icon Warren Buffett is worried.

“There will be a terrible problem, and then the question becomes will the federal government help,” Buffett said at a hearing of the U.S. Financial Crisis Inquiry Commission.

“I don’t know how I would rate them myself.”

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The bull market in municipal bonds continues to roll merrily along, as investors ignore some very bearish signals. Experts warn that cities as large as Los Angeles may go belly-up. Harrisburg, Pa., is thinking about filing for bankruptcy, and Central Falls, R.I., which...
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2010-23-21
 

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