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It has been just over three weeks since Detroit filed for Chapter 9 protection in federal court. The filing started what may be a one to two month long process to determine the city’s eligibility and number of claimants who may be able to access any settlement resource that may become available.
Authored by James Colby
While some may feel like August's "dog days" may already be descriptive of the next few weeks, I sense an undertone of market uneasiness which seems to me to want to push interest rates even higher (see yield curve graph below). A few observations:
Despite recent events in Detroit, I believe the famously coined term "green shoots" is an apt descriptor for the municipal bond market at this present time. Having been scorched by the wildfire correction that engulfed the fixed-income markets since the end of April, as evidenced by the sharp rise in interest rates (represented in the graph below), there now seems to be indication of a broadening of support for munis from the retail/registered investment advisor community. I have seen inquiries coming from dealers looking for bonds across the spectrum — indeed a welcome sight. The question remains: When does this become an embedded strategy that brings assets back to mutual funds and ETFs?
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Any discussion of specific securities mentioned in the commentary is neither an offer to sell nor a solicitation to buy these securities.
Municipal bonds are subject to risks related to litigation, legislation, political change, conditions in underlying sectors or in local business communities and economies, bankruptcy or other changes in the issuer’s financial condition, and/or the discontinuance of taxes supporting the project or assets or the inability to collect revenues for the project or from the assets. Bonds and bond funds will decrease in value as interest rates rise. Additional risks include credit, interest rate, call, reinvestment, tax, market and lease obligation risk. High-yield municipal bonds are subject to greater risk of loss of income and principal than higher-rated securities, and are likely to be more sensitive to adverse economic changes or individual municipal developments than those of higher-rated securities. Municipal bonds may be less liquid than taxable bonds.
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