Municipal Bonds Are Looking Cheap
A number of technical factors in the municipal bond market have magnified the selling pressure.
The head trader of one Wall Street credit desk likened last week's corporate bond market to the movie Groundhog Day. Just as Bill Murray's character was stuck living the same day over and over, credit spreads relentlessly ground tighter, and the supply of paper in secondary trading declined day in and day out.
The demand from corporate bond fixed-income funds appeared to be insatiable, as investors continued to reallocate their fixed-income investments from tax-exempt municipal bonds to taxable corporate bonds. New issues in the corporate bond market were generally well received, but demand for paper has reduced the typical new issue concession to zero. In fact, some new issues were priced tighter than the same firm's existing bonds. This forced the spreads of the existing bonds tighter. However, not everything fared quite as well in the new issue market. A few deals were priced so tight that the issue immediately traded wide of the new issue spread.
David Sekera does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.