Rosenberg: Ignore Whitney, Buy the Heck out of Muni Bonds

Posted by Ian Cooper - Tuesday, January 18th, 2011

From Pragmatic Capitalism:

“There is a clear buyers’ strike in the market for state and local government debt that is largely based on fear and misperception. The mass selling of muni’s, which represent the bedrock of the U.S. economy, is incredible ― nine consecutive weeks of net redemptions totalling $16.5 billion ($1.5 billion in the January 15 week). Talk about fertile ground for a huge long-term buying opportunity.

First, even if you buy into the default talk, look at the yield protection you get now. There are some long-term muni’s trading north of eight percent ― even higher than junk bonds (a premium of over 100bps!). Long-term AAA-rated muni’s are now trading well north of five percent or 116% vis-a-vis Treasury bonds (typically, muni bond yields are equivalent to 82% of Treasury yields given their tax advantage). California off-the-run 30-year 6% bonds are now being quoted at a yield premium to dollar-denominated debts offered by the likes of Mexico and Columbia.

Give me a giant break.

Even in California, only teachers come in front of bond holders. In other states, the debt holders are the first to get paid. It’s amazing how few people know that.

Read more here.


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