Muni Bond Health Check

The volatility in municipal bonds we saw at the end of 2012 due to speculation on the tax-exempt status of muni bonds and the U.S. fiscal cliff is pretty normal in terms of markets.

Market participants are normally used to seeing corrections, re-settings and re-balancings of opportunities in their markets. The same thing has just happened in the municipal marketplace.

It’s a healthy thing. Investors are going to find yields and opportunities in municipals even more attractive than they were back in October and November. Such has been the correction that’s occurred recently, but it is a healthy correction.

Nothing fundamentally has changed, and credit quality remains at the very top of the spectrum relative to other asset classes.

The outlook for states and municipalities in 2013 is improving. There are many reasons to be optimistic about the recovery and the health of communities around the country.

Although growth is not robust and we still face significant challenges, all evidence points to increased revenues and tax collections. States and municipalities must balance their budgets.

Constitutionally, they need to produce balanced budgets every fiscal year, which leads to more proactive participation on the part of legislators to actually manage revenues and manage through difficult times. I would say the outlook continues to be fairly positive for all states and municipalities who are issuers of municipal bonds.

Muni Bonds are the backbone of the D2 Capital Management Tax Free Income Portfolio.

Source: James Colby, VanEck Global

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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