Tuesday, September 25, 2012

Meredith Whitney on the Very Scary Municipal Bond Market

Whitney points out that incredibly state spending is at record highs and most muni bond investors are only looking at yield and maturity and, remarkably, none of the fundamentals.

This is not the time to own muni bonds for a number of reasons. Interest rates will soon start on a multi-year climb and there will be many muni defaults which will scare the entire muni sector.

The only thing that can prevent the muni bankruptcies is Fed money printing, which will enable governments to pay off debt in cheaper dollars, but this is price inflation, which will mean higher interest rates and declining bond prices.


  1. As world stocks, ACWI,turned down the week ending Friday September 14, 2012, the world passed through through peak credit, as Total Bonds, BND, and Municipal Bonds, MUB, rose to new wekly highs on September 28, 2012.

    Today, October 1, 2012, the linked daily chart of Municipal Bonds shows them manifesting bearish harami at the top of an wedge suggesting that they have indeed topped out.

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  3. I see what ms. whitney is talking about as a sign of bad financial management on the part of investors. Instead of focusing on maintaining a balance, those people opted to go for moves that will make easy money, albeit at the cost of stable long-term movement.