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JAMES COLBY

Portfolio Manager and Senior Municipal Strategist, responsible for Market Vectors municipal bond investments
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MUNICIPAL-ORIENTED ETFs

CEF Municipal Income ETF* XMPT 
High-Yield Municipal Index ETF HYD 
Intermediate Municipal Index ETF ITM 
Long Municipal Index ETF MLN 
Pre-Refunded Municipal Index ETF PRB 
Short Municipal Index ETF SMB 
*XMPT is a “fund of funds” and is subject to the risks of the underlying funds’ investments.
 

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Santa Claus, Still Coming… - Thursday, 12/20/2012

Month-to-date, and really it is over the last eight business days, munis have sold off in dramatic fashion (now, drama in muniland is far from what is experienced in equities or treasuries). The Barclays Municipal Bond Index is down 1.66% and even the High Yield Index is down 1.08%. The representative AAA yield curve — MMD — has risen by over 40 basis points in that time in a move that likely has many dealers shaken and investors confused. In truth, I don't believe anyone saw this correction coming. My previous MUNI NATION post explains the conditions which took the market down, but other than the downgrade of certain Puerto Rico credits, this was very much a technical correction.

Still, the impact of the failure of our representatives to reach any meaningful accord on serious issues of taxation and spending is a source of enormous frustration. Further, the question of what becomes of the tax-exempt coupon remains a topic of debate, and has clearly spooked the market.

Yes, Santa is still coming to muniland, in the form of reinvestment of coupon, calls and maturities to the jingling of more than $20 billion for December. And once the snow globe settles for investors and advisors, I believe they will see the same high credit quality marketplace at yield levels not seen for many, many weeks. If investors loved the muni market a month ago at the rate of $1 billion in new cash, then the relative value proposition is now all the more compelling. Ho Ho Ho.  


MMD "AAA" Yields Reverse Trend

 Maturities 

9/14/2012  

9/21/2012 

12/7/2012  

12/19/2012 

5 YRS

0.75

0.69

0.64

0.83

10 YRS

1.93

1.79

1.49

1.82

15 YRS

2.34

2.21

1.82

2.15

20 YRS

2.64

2.51

2.12

2.45

30 YRS

3.06

2.95

2.49

2.86

Source: Municipal Market Data as of 12/19/2012.

 


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Authored by James Colby

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Van Eck Associates Corporation 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 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. © 2013 Van Eck Securities Corporation. MUNI NATION is a service mark of Van Eck Associates Corporation.

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