Tags: Municipal | bonds | Whitney | default

Municipal Bonds Defy Gloom and Doom Forecasts

By    |   Monday, 26 Dec 2011 02:54 PM

Over the past few years many investment gurus, including Warren Buffett and Meredith Whitney, have warned of impending doom in the municipal bond market.

The worry was that municipalities would have to default on their debt, thanks to shrinking revenues and ever expanding pension and healthcare benefits for their workers and retirees.

But munis represent one of the strongest asset classes this year. The Merrill Lynch Municipal Master bond index gained 10.25 percent so far this year through Monday.

Meanwhile, the Barclays Capital Aggregate bond index, which includes corporate and Treasury bonds, gained 7.06 percent. And the Standard & Poor’s 500 Index is up only 0.6 percent.

In September 2010, Meredith Whitney predicted municipalities would default on hundreds of billions of dollars of debt, perhaps within a year, causing a major selloff in the market. But so far, her forecast is wrong.

Municipal bonds "got beat up at the beginning of the year, so we were starting from a low base," Rafael Costas, co-director of Franklin Templeton's municipal-bond department, tells The Wall Street Journal.

"As the year went on, people realized all these terrible predictions were not coming to pass. Things were not as bad as people were making them out to be."

While states and cities still face major financial problems, tax receipts for state governments have risen for seven straight quarters, John Mousseau, a municipal analyst at Cumberland Advisors, writes in a report obtained by The Washington Post.

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Over the past few years many investment gurus, including Warren Buffett and Meredith Whitney, have warned of impending doom in the municipal bond market. The worry was that municipalities would have to default on their debt, thanks to shrinking revenues and ever expanding...
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Monday, 26 Dec 2011 02:54 PM
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