Edward Harrison explains:
Kyle Bass doesn’t believe that the bloodletting in the muni market we have seen so far is enough to warrant taking on the increased credit risk that municipal bonds now have. Bass, who is a principal at the hedge fund Hayman Capital Management, said yesterday on CNBC that he sides with Meredith Whitney on the muni issue. And he is specific about the risks in specific classes of munis. He says states are better than cities and counties and general obligation bonds are better than project-specific bonds and municipal pass-throughs.Note: I am not so sure general obligations are all that safe for some municipalities. The assumption is that a municipality can just increase taxes to cover a shortfall. This assumption can be made a lot easier than a tax increase can be implemented. Given the uncertain and volatile economic environment, a tax increase may not be possible, down the road, in some municipalities.
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