Market Commentary (MUNICIPAL BOND MARKET UPDATE)

Municipal bond prices continued their move upward during the month translating into lower yields on new issues and current market offerrings. The bond price rally has been powerful over the last three months resulting in month end municipal bond yield levels that we have not seen in some time. Yields spreads are compressed across the different quality and maturity spectrums, as well. This flattening of the yield curve is the result of several factors including: the reduced supply of non taxable municipal bonds resulting from the Build America bond program, the continued strong demand for non taxable municipal bonds and investors’ general willingness to ignore credit scares by not demanding greater yield premiums.

Legislation to extend the Build America bond program beyond its scheduled expiration at year end has not been approved and is stalled in the Senate, most likely until after the fall elections.

Harrisburg, Pennsylvania announced that it would not meet a mid September debt service payment on an outstanding unlimited tax general obligation bond issue. This issue is not directly related to its failing incinerator project issue whose debt service, in part, is backed by the city’s pledge.

For more information contact your Bernardi Investment Specialist.