Volatility in the municipal market was significant during the last quarter and we expect it to continue into the foreseeable future. The fourth quarter of 2010 was brutal period for total return oriented municipal bond investors. The Barclays Capital Municipal Bond Index declined 4% in the quarter with much of the loss occurring in the month of December. Municipal bond price declines were greater this past December than they have been in many years.
Contributing factors to the decline in bond prices and increase in bond yields during the month included:
- Massive liquidations of bond fund holdings
- A larger than normal supply of new issues
- Non-renewal of the Build America Bonds program
- Extension of the Bush-era tax brackets until 2012
- General unease with municipal bond credit quality
The collapse of municipal bond prices over the last two months of the year does have an upside for income oriented investors. Current market yields are higher today, and in most cases greater, than yields available one year ago for similar quality and maturity issues.
For a deeper analysis of recent market volatility, please take the time to read my latest President’s Letter, A Bond Market in Turmoil, and discuss it with your Investment Specialist.
Bernardi Securities, Inc.
January 06, 2011
For more information, contact your Investment Specialist.