Municipal bond prices declined and yields increased during the month as the powerful bond market rally of the last several months subsided. This trend translated, generally, into negative monthly performance for most municipal bond investors. New issue volume for the month was light as it continues at a much lower annual pace than volume of the last few years. Year to date, approximately 25% of new deals are taxable Build America bond issues which contributes, in part, to the currently low, non-taxable bond yields. 


  1. Harrisburg, Pennsylvania did not default on its general obligation bond payment due in September, as was feared at the beginning of the month. The State of Pennsylvania advanced funds to the City and a portion of those funds made it possible for Harrisburg to honor its commitment to bond investors. Harrisburg now has some additional time to develop and implement a sensible fiscal plan in order to avoid future threats of bond default. We will have to wait and see how it decides to act.
  2. Proposed legislation to extend the Build America Bond (BAB) program beyond its 2010 expiration remains stalled in Congress until after the November elections. We continue to believe the program will be extended, although the scope and terms of the extended program will be far less generous to municipal issuers than what was initially proposed many months ago. Meanwhile, the Treasury department is actively working on guidance pertaining to issue pricing of future BAB issues in order to lessen the degree of uncertainty in the marketplace. Its goal is to improve the current situation by removing some of the uncertainty that currently hangs over the market regarding new issue pricing rules.
  3. Industry regulatory bodies (SEC and FINRA) remain committed to increasing the availability of municipal issuer credit information and disclosure timeliness. We expect to see additional rules subjecting broker dealers, advisors AND issuers to a heightened standard. On the face of it, this is a positive development for investors and the marketplace. The key will be the details as implementation may prove problematical to market liquidity if the new requirements are too complicated and too broad. We are watching this one closely. 

For more information contact your Bernardi Securities, Inc. Investment Specialist.