Municipal Bond Markets - Boy I'm Just Not So Sure About Muni-Bonds Anymore, Let Me Explain

[baqirkhatri]

It's been a while since CNBC has interviewed Meredith Whitman on the Muni-Bond market after her dire predictions, perhaps a little pre-mature, or maybe not? It seems everything is still not well, and I'm not just talking about Harrisburg PA, Birmingham AL, or Stockton CA. You see, there is a new problem afoot, one which might make things tougher for municipalities to get the funding and financing they need to do what they have to do. 

"DM Intl."

Worse, the investors or current municipal bond holders could be in a little bit of a pickle trying to unload muni-bonds prior to their maturity dates, as no one may want them. On May 10, 2012 the Wall Street Journal had a piece titled "For Muni-Bonds, Less Assurance," by Jeannette Neumann that stated; "The last remaining insurer of new municipal-bond issues is bracing for a fall that could bring its industry to a new low and possibly increase borrowing costs for some small local governments."

Interestingly enough the Obama-Buffet Millionaire Tax Rule has a clause in it which allows investors to invest in muni-bonds tax free, this is good as it puts the bond market at ease, but you know what they say about easy money, balloons, and the Bubble Builders. Solid A-rated cities shouldn't have too much of a problem, but what about smaller towns? Well, it appears that the dynamics of this financial sector are about to have some rather volatile perturbations, fluctuations, and could make the VIX look like child's play - at least in the short term if that insurance is no longer available.

Yes, things are about to get interesting, and who is surprised really after watching all the EU defaults and insurance costs for bonds in Italy, Spain, Portugal, and Greece? Are Muni-bonds still a good place to park your money? And what about the flight to safety, and all the money in the EU flooding into our markets? New tax laws, flight to safety, and now the only remaining insurer of municipal bonds contemplating exiting the market forthwith? As if things couldn't get any more exciting, here we go again. Maybe Meredith Whitman was right, and the muni-bond market realizes it is in over their head.

Of course, city governments should never borrow money they can't pay back, and with their tax base severely curtailed due to low tax receipts, and with the Obama Administration still the White House, there is far too much uncertainty to not be worried. Indeed I hope you will please consider all this and think on it.