Municipal performance has been quite good. Long dated munis are up 5.25% since the beginning of the year mostly in reaction to very positive supply technicals.

New issue supply is a little more than half of what it was for the same period last year! To put things in perspective, approximately 70 billion worth of reinvestment proceeds were created in the first quarter from maturing bonds and paid coupons versus less than 50 billion issued.

April has historically been a time when new issue supply increases and demand subsides. Tax time is a period when retail buyers have less cash to invest in new municipals and it is a time when there are relatively fewer maturing bonds and paid coupons.

Muni performance will likely pause in April.

Muni closed end funds are now trading at attractive discounts to NAV. We monitor the leverage, dividend stability, and Puerto Rico exposure. Please call with any questions.

The chart below is from Bloomberg data that shows the historical discounts to NAV on a basket of Closed End Funds that we monitor.

The talking heads in the financial media and by default, most retail investors, are very concerned about interest rates rising. We would agree that Treasury rates are low as they have been supported by the Fed's massive quantitative easing program.

The muni market, on the other hand, has seen massive amounts of fund liquidations especially in the long end. The muni curve is now extremely steep which implies that the market anticipates higher rates in the future. In fact, there have not been many other times in history where the curve has been this steep.

AAA 5yr yld = 1.20
AAA 30yr yld = 4.20

In the double AA space the curve is even steeper; 5yr at 1.50 and 30yr at 5.00.

We believe duration is cheap and that clients should be considering adding long duration paper at 5% or better yields.

Please call with any questions.

The January Effect

We like positioning our client's portfolios to profit from the January Effect......the opportunity to buy cheap bonds in December and sell them in January.

December is a month with limited liquidity as Institutional accounts and Dealer desks close for the holidays and year end. At the same time, some Issuers try to get their final funding done and retail does year end tax loss swapping (especially this year). The selling pressure from new issues and tax loss swapping often cheapens the market and the illiquidity often exaggerates the price movement.

January is a month where there is very little new issuance as issuers plan their funding needs for the year. At the same time there is an extraordinary amount of bonds that mature. All of this results in lots of demand and no supply.

Give us a call to discuss how we can help.