Entries by Matt Bernardi

Natural Disaster: Event Risk in Today’s Municipal Market

The tragic storms over the past months highlight the concept of “event risk” investors face while investing in the municipal bond market. Event risk is a term more closely associated with the stock or corporate bond markets, where an underlying credit can be significantly impacted on a short term basis by an unforeseen event. Substantial credit deterioration in the municipal market traditionally resembles a slow moving train wreck (e.g. Detroit, Puerto Rico, Hartford).  That said, events like Irma, Harvey, and Maria can create massive shocks to the system, potentially impairing fiscal balances enough to create distressed credits from an otherwise healthy or stable state. What can we learn from such events and their impact on the municipal market? Also, how does sound credit analysis account for such risk?

The Cost of Waiting for the “Right Hand” of Cards

The post-crisis monetary policy reaction pushed interest rate markets into unchartered waters of zero interest rate policy (ZIRP). We have all become somewhat deadened to this reality over the last handful of years as monetary policy has led to heightened market valuations, paired with one of the longest periods of economic expansion (93 months) in our economic history.

Municipal Pension Liabilities: Between a Rock and a Hard Place?

By Matthew P. Bernardi Municipalities have done an excellent job since the financial crisis in stabilizing their finances and have pulled a number of levers to reduce fixed costs. Today’s low growth environment calls for prudent management and the average municipality has taken a conservative approach, especially relative to corporations. That being said, this low […]

Our Three Pillars and the Latest Census Report

By Matthew P. Bernardi Our descriptive Three Pillars is an over generalization of our approach to municipal credit analysis. When we look under the hood of each bond, numerous variables come into play, including: State statutes, taxing capacities and limits, the real or perceived unsecured status of the lien, political trends, and many others. This […]

An Investor’s Duck Test

By Matthew P. Bernardi “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.” This straightforward method of reasoning can often help one gain a better understanding of the intricate – yet ubiquitous – financial products of today. When applying the reasoning above, in […]

Premium Municipal Bonds: Benefits in a Rising Rate Environment

By Matthew P. Bernardi Many investors find it difficult to pay a price greater than par for a bond. We often find this hesitation is purely psychological and causes some investors to miss an advantageous structure in a low interest rate environment. This market commentary is written to explain why premium municipal bonds often offer […]