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Game On - Thursday, 01/19/2012

  • Investors purchasing high volumes of investment grade bonds
  • Limited supply is boosting prices, and applying pressure on yields
  • 2011's positive performance trend continues in the New Year

Perhaps it was a combination of views expressed last week by the likes of PIMCO, Barron’s and The Wall Street Journal, touting the merits and benefits of the municipal bond market, but interest is clearly being expressed by buyers gobbling up investment grade bonds in spasms of transactions.  

Many municipal bond positions have already traded at levels of 5 -10 basis points lower in yield from opening offers (which translates into to higher prices).  Even more dramatically, some tobacco muni bonds*, which offer both block size and trading liquidity, have moved higher by 3 points ($3) in price, while losing 40 basis points in yield. GAME ON.

The message to insurance companies and some mutual funds from the general marketplace seems to be: Don’t wait for supply to show up. Buy now.  And, this week, they are.

The municipal bond market has continued to make gains day-over-day in January, as the coupon and maturity reinvestment opportunities are now fully an exercise of demand overwhelming supply.  As such, it seems to me that the outperformance of the muni bond market did not end with the 2011 calendar year. Year to date (as of 1/17/11), the general Barclays Capital Municipal Bond Index has already gained 1.63%, and Barclays Capital High Yield Municipal Bond Index is up 2.85%.

*Revenue bonds backed by annual payments made in perpetuity by domestic cigarette companies.

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; the Barclays Capital Municipal Bond High Yield Index is a subset of this major Index.  

 

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Please note that the information herein represents the opinion of Jim Colby and these opinions may change at any time and from time to time. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-Van Eck Global 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 Van Eck Global. © 2014 Van Eck Securities Corporation. MUNI NATION is a trademark of Van Eck Associates Corporation.

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