2011 Recap: Still Waiting For The Storm
- Wednesday, 01/04/2012
- Munis are confirmed $3.7 trillion marketplace
- Strong second-half surge boosted 2011 performance
- Soundness of credit quality put default worries to rest
I strongly debate that describing the U.S. municipal bond marketplace as a "backwater," "insular" or a "shadow asset class" is inaccurate and inappropriate. As restated by the Federal Reserve, with a little push from the analysts at Citigroup, U.S. muni bonds are currently a confirmed $3.7 trillion marketplace (up from a previous valuation of $2.1 trillion in 2010), with average credit quality, among its more than 60,000 issuers, currently in the double-A range.
With the broad municipal market up by 10.70% at year end (as measured by the Barclays Capital Municipal Bond Index†), and even comparing very favorably to other asset classes in 2011, including equities, the naysayers are still waiting for the rain.
Still burning in our minds are the assertions made a year ago about an impending credit crisis which led to 29 weeks of outflows and price declines for munis. With little evidence of an economic recovery, either domestically or internationally, it was a struggle for market participants to "prove" the worth and value of the asset class.
By mid-year, the realities of the soundness of the credit quality of the municipal market overcame the trepidations of individual investors. States were balancing their budgets and the "waves of defaults" did not occur. Performance, especially with single-A and double-A rated securities, highlighted a strong second half-year surge.
Though very real concerns for a fitful economic rebound will continue to eat away at some local economies, I believe municipals are likely to continue to prove their worth with positive performance into the new year.
†Barclays Capital Municipal Bond Index is considered representative of the broad market for investment grade, tax-exempt bonds with a maturity of at least one year.