Van Eck Global - Since 1955

For What It’s Worth - Friday, 06/14/2013

The Buffalo Springfield song refrain, "…what's that sound, everybody look what's going down" applies as much to the financial markets of today as it did to life in 1967. We seem to have reached a tipping point where investors and traders are intent upon stealing the Fed’s thunder and have begun to drive interest rates higher on their own. In my view, bearish talk and sentiment have led to the selling of mutual fund shares, which has led to the selling of cash bonds, pushing prices lower and yields higher. Because a large portion of the muni market is owned by retail investors who are sensitive to these issues, mutual fund and ETF price declines have the potential to force even more selling.

"What’s going down" is more than just prices. I believe several factors are likely at work in pushing this anxious market to act before the news is actually on the tape: a sea change in overall sentiment, talk of the rotation out of bonds into stocks and the subsequent performance of these securities and, lastly, the possibility that the Fed will scale back its quantitative easing policy. Where does this leave concerned investors?

As often happens during times of market volatility, corrections — dramatic changes in market direction evidenced by great price changes — are very often overdone. Momentum in this type of market may be difficult to stop and generally overshoots reasonable endpoints. Let's not overlook the fact that, in my view, these higher taxable equivalent yields may some time in the future look attractive versus equities and corporates once more. The seasonal technicals governing the positive outlook for near-term demand are still in place. I am not the only one suggesting that this is not the time to abandon the baseline philosophy that municipals should remain prominent in one’s portfolio.

Index/Bond Table

Source: FactSet, as of 6/11/13.


*12-month dividend yield: 12 month dividend per share/price.

**Yield to worst or the lowest of either yield-to-maturity or yield-to-call date on every possible call date.

Indices listed are unmanaged and not a security in which an investment can be made. The S&P 500 Index consists of 500 widely held common stocks covering industrial, utility, financial and transportation sectors. The S&P 100, a subset of the S&P 500, includes 100 leading U.S. stocks. Constituents of the S&P 100 are selected for sector balance and represent about 57% of the market capitalization of the S&P 500 and almost 45% of the market capitalization of the U.S. equity markets. The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The U.S. Aggregate Index includes government securities, mortgage-backed securities, asset-backed securities and corporate securities to simulate the universe of bonds in the U.S. market. The Barclays Municipal Bond Index is considered representative of the broad market for investment-grade, tax-exempt bonds with a maturity of at least one year.

Taxable equivalent yields (TEY) are used by investors to compare yields on taxable and tax-exempt securities after accounting for federal income taxes. TEY represents the yield a taxable bond investment would have to earn in order to match, after deducting federal income taxes, the yield available on a tax-exempt municipal bond investment. TEY = Tax-Free Municipal Bond Yield/(1 -Tax Rate).


 jim_colby_signature 

 

 

Important Disclosure 

Van Eck Associates Corporation does not provide tax, legal or accounting advice. Investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service.

Please note that MUNI NATION is written by Jim Colby and represents his opinions, and these opinions may change at any time and from time to time. MUNI NATION is not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Global. © 2014 Van Eck Securities Corporation. MUNI NATION is a trademark of Van Eck Associates Corporation.

All indices listed are unmanaged indices and do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.

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.

The income generated from some types of municipal bonds may be subject to state and local taxes as well as to federal taxes on capital gains and may also be subject to alternative minimum tax.

Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 888.MKT.VCTR | 888.658.8287. Please read the prospectus and summary prospectus carefully before investing.  

Not FDIC Insured — No Bank Guarantee — May Lose Value 

Van Eck Securities Corporation, Distributor
335 Madison Avenue, 19th Floor
New York, NY 10017
888.MKT.VCTR | 888.658.8287