Municipal bond prices continued their upward move during May resulting in lower yields across the maturity spectrum at month end. A calmer tone to our marketplace has set in over the past two months as much of the selling hysteria earlier in the year has subsided.
Bullish market emerges in calm after the storm
This moderating dynamic, coupled with a significantly reduced supply of new issue transactions and lower U.S. Treasury bond yields in recent weeks has resulted in a bullish municipal bond market. June reinvestment demands total a fairly significant sum, so absent a sizable sell off in Treasury bond prices, we expect non-taxable municipal bond indices to maintain much of their year-to-date gains.
State revenues improved for fifth consecutive quarter
Generally, state revenue collection year to date continues to exceed budgeted projections and fiscal situations are improved from last year. The Rockefeller Institute of Government reported that tax revenues rose by over 9% in the first quarter. This is the fifth consecutive quarter of state revenue growth. California, Michigan, Pennsylvania, New Jersey and Texas all recently reported greater than budgeted revenue collection numbers. New York approved its annual budget on March 31st before the beginning of its fiscal year starting April 1st and reduced expenditures by approximately 2.5%. This is the first time since 2006 the state has approved its budget before the start of the fiscal year and the first time since 1995 it has reduced expenditures.
Liquidity challenges still good for some, bad for others
Market liquidity remains a challenge depending greatly on the idiosyncrasy of the specific credit up for sale. We have discussed this topic at length in earlier publications and do not expect this to change anytime soon. Its presence will continue to create problems for certain investors and opportunities for others. As always, we believe that diligent, independent credit research is the key to knowing and capitalizing on the difference.
Ronald P. Bernardi
President and CEO
Bernardi Securities, Inc.
June 2, 2011
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