• Muni Nation

    Red Light, Green Light

    Jim Colby, Portfolio Manager
    September 27, 2012
     

    This week began with a firm tone as I believe the secondary market seems poised for municipal bond prices to move higher. Dealers appeared comfortable with current municipal market levels and we have seen increased interest in the shorter end of the curve.

    During the week ending September 14th, municipal bond prices fell as yields increased anywhere between 5 to 15 basis points; the equity market staged a rally on positive news from the European Central Bank and the U.S. Federal Reserve Bank. However, a nearly complete reversal took place the following week ending September 21st, even as new supply began to push bond yields higher. I believe investors may have either been enticed by the rising yields and newer names or by the 42nd consecutive week of cash flow into municipal bond ETFs and mutual funds.

    With the calendar rolling by, technicals, driven by demand, appear to be firmly in charge. The state of California is already pre-marketing $1.55 billion of general obligation bonds. As of September 25th, retail has soaked up approximately $1 billion of the new issue, even before institutions such as Franklin Funds or other mutual funds with a California presence have placed orders.

    Over the past six business days we’ve seen increased trading in the VanEck Vectors Short Municipal Index ETF (NYSE Arca: SMB) and VanEck Vectors Intermediate Municipal Index ETF (NYSE Arca: ITM). Selling emerged in VanEck Vectors High-Yield Municipal Index ETF (NYSE Arca: HYD) and in ETFs from several other providers last Tuesday, which left me wondering if someone was unwinding a strategy. Despite a notional value of nearly $50 million total in high yield municipals sold during this period, the market makers appeared able to absorb the activity without any unusual widening of bid/ask spreads.


     jim_colby_signature 

     

  • IMPORTANT MUNI NATION® DISCLOSURE  

    This content is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this content. Nothing in this content should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.

    VanEck 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 this post represents the views of the author and these views 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-VanEck 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 VanEck. 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 a fund. An index’s performance is not illustrative of a 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.

    Diversification does not assure a profit or protect against loss.

    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 a fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.

    Van Eck Securities Corporation, Distributor
    666 Third Avenue
    New York, NY 10017
    800.826.2333