State and local bonds offer some of the most compelling value in credit markets because the U.S. municipal debt market has “swung too far into default panic,” according to Pacific Investment Management Co.
“The real level of defaults that the muni market will experience will be well below what the market currently implies, not to mention some of the more extreme predictions of hundreds of billions of dollars worth of muni defaults,” Pimco, the world’s biggest manager of bond funds, wrote in a report.
Meredith Whitney, the banking analyst and chief executive officer of Meredith Whitney Advisory Group, speaking Dec. 19 on CBS Corp.’s “60 Minutes,” predicted that states’ fiscal stress would spark a “spate” of defaults among municipalities amounting to “hundreds of billions of dollars.”
Investors last week withdrew $1.1 billion from U.S. municipal-bond mutual funds, the 12th straight outflow, Lipper U.S. Fund Flows said Feb. 3. About $23.6 billion has been redeemed since the week ended Nov. 17, including $4 billion in the week ended Jan. 19, the most since Lipper started compiling data in 1992.
Bill Gross, the founder and co-chief investment officer of Newport Beach, California-based Pimco, said in a Jan. 12 interview on Bloomberg Television that he doesn’t subscribe to Whitney’s “theory.’
Pimco, a unit of Munich-based insurer Allianz SE, managed $1.24 trillion of assets as of Sept. 30.
The report was written by Christian Stracke, global head of Pimco’s credit research group, and Joseph Narens, a municipal credit analyst for the firm.
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