Tuesday, December 16, 2008

Muni Market Whacked

Great recap of the Muni market and its anomalies over at The Bond Tangent. One story he posts to from The Bond Buyer:

discusses some anomalies that have emerged since institutional investors largely exited the market and munis became less liquid, including 1) prerefunded bonds yielding higher rates than the Treasuries they are backed by, 2) corporate-backed munis trading cheaper than the corporation's taxable debt, and 3) insured bonds trading cheaper than bonds of the same underlying credit quality.
Muni's historically have been quoted in terms of a ratio to Treasuries (non-taxables historically trading in the 80-90 range vs. Treasuries). Given current conditions, it may be time to start quoting Muni's in terms of spread.