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Santa Claus, Still Coming… - Thursday, 12/20/2012

Month-to-date, and really it is over the last eight business days, munis have sold off in dramatic fashion (now, drama in muniland is far from what is experienced in equities or treasuries). The Barclays Municipal Bond Index is down 1.66% and even the High Yield Index is down 1.08%. The representative AAA yield curve — MMD — has risen by over 40 basis points in that time in a move that likely has many dealers shaken and investors confused. In truth, I don't believe anyone saw this correction coming. My previous MUNI NATION post explains the conditions which took the market down, but other than the downgrade of certain Puerto Rico credits, this was very much a technical correction.

Still, the impact of the failure of our representatives to reach any meaningful accord on serious issues of taxation and spending is a source of enormous frustration. Further, the question of what becomes of the tax-exempt coupon remains a topic of debate, and has clearly spooked the market.

Yes, Santa is still coming to muniland, in the form of reinvestment of coupon, calls and maturities to the jingling of more than $20 billion for December. And once the snow globe settles for investors and advisors, I believe they will see the same high credit quality marketplace at yield levels not seen for many, many weeks. If investors loved the muni market a month ago at the rate of $1 billion in new cash, then the relative value proposition is now all the more compelling. Ho Ho Ho.  

MMD "AAA" Yields Reverse Trend











10 YRS





15 YRS





20 YRS





30 YRS





Source: Municipal Market Data as of 12/19/2012.





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