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Following Janet Yellen’s recent testimony, many investors may just want to wait for Federal Reserve policy makers to raise interest rates before committing money to the bond market. After all, the fed funds rate has been held in the 0% to 0.25% range for years so rates must go up, right? The answer is perhaps, but interest rate timers may have wasted four years waiting to catch a bigger fish – and just missed it. Most of the hike in interest rates that investors have been waiting for may have already happened.

In just the past 15 months, the yield on the benchmark, 10-year Treasury note has climbed from 1.65% to 2.71% where it stands as of this writing. That’s a 106 basis point increase in yield at the same time the fed funds rate has remained unchanged.

Analysis of past four Fed tightening cycles

Shown below is an analysis of the past four Fed credit tightening cycles along with the resultant yield for the 10-year Treasury note during the same period. You will notice that the fed funds rate actually ended up higher than the yield on the Treasury in three of the four cycles.

July 1, 2004 thru September 2007

  • Fed funds rate increased from 1.00% to 5.25% – plus 425 basis points
  • 10-year Treasury note yield decreased from 4.56% to 4.52% – lower by 4 basis points

June 30, 1999 thru May 16, 2000

  • Fed funds rate increased from 4.75% to 6.50% – plus 175 basis points
  • 10-year Treasury note yield increased from 5.78% to 6.42% – plus 64 basis points

February 4, 1994 thru February 1, 1995

  • Fed funds rate increased from 3% to 6% – plus 300 basis points
  • 10-year Treasury note yield increased from 5.87% to 7.65% – plus 178 basis points

January 1988 thru February 1989*

  • Fed funds rate increased from 6.50% to 9.75% – plus 325 basis points
  • 10-year Treasury note yield increased from 8.79% to 8.98% – plus 19 basis points

*Fed funds rate figures for this period are approximated as Federal Reserve decisions were not officially announced at the time.

*Fed Funds rate figures for this period are approximated as Federal Reserve decisions were not officially announced at the time.

It is important to remember that the Fed – aside from the quantitative easing policies, which are now being tapered – is not usually buying or selling longer dated bonds. Traders, investors and other market participants will generally dictate the yields on long bonds. Pricing is based in large part on future inflation and growth expectations. As the economy has shown signs of recovery, these participants have been driving the yields of long bonds upward to compensate for the expected erosion of net return that is caused by inflation.

When the Fed does start to raise the fed funds rate, a perverse thing, as far as those on the sidelines are concerned, usually happens as evidenced by the preceding analysis – the rates on long-term bonds peak and then start to fall. This happens because the prime rate is tied to the fed funds rate, which is directly tied to almost all forms of consumer and most business borrowing. When these rates go up the cost of borrowing goes up, which slows the economy. A slowing economy is usually welcome news for bond investors because costs of goods and services tend to stabilize or even fall, which preserves the buying power of fixed income investments.

The rising-rate advantage of individual bonds

The reason many typical, buy and hold, municipal bond investors may not be buying longer-term bonds right now is because they have been scared into thinking that the value of their investment will decline sharply if interest rates rise. It is the dreaded total return argument.

For those buying individual bonds, perhaps the most important thing to consider is that you know the score of the game at the outset. Unlike bond fund investors ¬– whose investment lacks a maturity date and therefore will lose principal if rates rise – the individual bond buyer will receive their money back at maturity. From the first inning, the investor buying individual bonds knows the final score: the yield and the maturity. Fund investors lack that certainty – their return will fluctuate.

Calculating the cost of waiting

Here is an illustration to bring this all home. Assume one has $100,000 available to invest. Let’s say you can put the money in a long-term bond with a 4.00% coupon, priced at par or park it in a one-year bond yielding 0.50%. After a year, the investor in the ultra-short bond has received $500 while the long-term buyer earned $4,000. The short-term investor retains their options but at a steep cost.

Let’s say the ultra-short investor guessed correctly, though, and after one-year he or she is able to invest in a bond yielding 5.00%. The 5.00% bond generates $1,000 more interest annually than the 4.00% bond but it will take about four years for the short-term investor just to break even with the investor who put his money into the 4.00% bond today.

If the investor is right about the direction of rates but wrong about the size of the move – for instance, one is only able to invest at 4.75% – it will take about five years for him to catch up. If rates remain where they are, or decline, the investor will never catch up.

We are not advocating abandoning your current investment parameters to buy 30-year bonds. Rather, stick to your existing ladder and forget about trying to time the market. There’s a hefty price to pay for thinking you can predict the unpredictable.

As always, please contact us if you have any questions, or would like us to review your portfolio with you.

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Are you thinking of selling some of your bonds?

Selling bonds is an infrequent exercise for most retail investors and even many institutional clients.

A vexing question for many is, “How do I know I am getting a fair market price for my bonds?” At many firms in our industry, the sale process is needlessly opaque and confusing.

Years ago we realized this as an industry shortcoming so we developed and implemented a transparent and cost efficient “bid wanted“ process. We believe this process is superior because it ensures the transparency and efficiency our clients seek.

Here is a snapshot summary of our process when clients sell bonds through our trading desk: Our trading desk will put your bonds out for bid on one or more of the available, nationwide, bid wire services ensuring your holding will receive nationwide attention. After a couple hours ‘on the wire’ the bids are reviewed and our trading desk may or may not bid the bonds.

The results are input to our bid template and then sent to the client for review. A sample of this template is shown below:

There are several things this transparent bid report reveals: 

  • The number of bids each CUSIP receives.
  • The second place (or cover) bid and how far behind it is relative to the high bid. We often then add color as to what we think this means.
  • Whether or not Bernardi Securities, Inc, trading desk is bidding the bonds.
  • Our public mark–down schedule clearly enumerates our gross profit (your cost) we charge to run bid process for issues sold to the high street bid.
  • If the CUSIP has recently traded, the report shows if the received bids are representative of current market levels. Are the bids fair?

These are all valid and important questions and for these reasons we developed and implemented this practice several years ago.

Our goal is to make the sale process as transparent as possible. Given the arcane nature and many nuances of the municipal bond market, we believe our method provides excellent execution for our clients.

If you are thinking of selling or if you need price discovery for regulatory purposes, we ask that you call us and we can discuss our process in greater detail.




Please call 312-281-2015 for more information about our municipal bond portfolio management process.

Investing in today’s volatile municipal bond market requires highly specialized portfolio management. Since 1984 – in good markets and bad – the disciplined Bernardi Securities, Inc. approach to active municipal bond portfolio management has produced solid returns for clients.

Bernardi serves investor needs using a proven municipal bond portfolio management process:

  • Investment policy & parameters – Establish municipal bond portfolio goals and investment parameters, and update them periodically
  • Portfolio strategy – Develop and adhere to an active, laddered portfolio strategy aligned with individual client requirements
  • Credit research – Manage credit risk by building portfolios on the three pillars of municipal credit research
  • Bond selection – Uncover above average value and invest at above average yield levels
  • Performance monitoring – Outperform market averages to produce solid returns

Municipal Bond Portfolio Management Overview
A summary of the Bernardi Securities approach to active municipal bond portfolio management.
Download PDF >


Good afternoon, I am pleased to be here today with you, Kevin and Mayor Benjamin and have a conversation about the importance of municipal bonds to your constituents. Your have heard from Mayor Benjamin how important municipal bonds are to the citizens of Columbia; Kevin has explained how critical tax- free municipal bond financing is to building our airports. My role here is to complement these 2 gentlemen, explain our firm’s role in the marketplace and give you a history of the municipal bond market, share a few of my experiences.  I read in the invite I am a “seasoned expert”……which means I am long in the tooth so I think I bring a historical perspective that hopefully will help you.

So first, let me give you a little background information about our firm. Bernardi Securities is a Chicago based municipal bond specialty firm, established in 1984. We are regulated by the SEC, FINRA, state agencies, Municipal Securities Rulemaking Board(MSRB). We are a municipal bond market maker and rely on our in house credit research team. We  publish and speak on current issues like: threat to tax-exemption, market transparency and disclosure I began my career, 1980; Our Chairman, Edward Bernardi began career in the late 1950’s. What we do is important to the clients we serve. They count on the municipal bond market and they count on us to help them navigate through it.

I am here today because I believe what we have to say is very important to you and your constituents. This is not so much about Ron Bernardi’s interest as it is about the interests of the people living in Columbia, South Carolina, the people I serve, the people living  in your congressional districts. When you leave today, I hope you will remember this: Municipal bonds build America.

The municipal bond market is very important to this country. Generally, it functions well, day in day out, year after year and has been doing so for over 100 years. It is far more efficient, more transparent than when I began in 1980, improving every year. It is far from perfect, but it is a sound , good, fair marketplace. And,  it needs to continue to evolve, progress in sensible, measured ways. Congress’ mission should be  to help the municipal bond market evolve and improve,  not curtail or hinder it. Repeal tax-exemption, curtail it any meaningful way and it will be harmed. And your constituents will bear the brunt of the effects. Not Bernardi Securities, not Mayor Benjamin and not the airport council ….your constituents.

So what is Bernardi Securities role in the market? We have three primary functions: First, we assist issuers in planning capital projects and raising funds for infrastructure projects. Ithaca , NY in August of 2013 refinanced approximately $ 3 million loan;  it lowered its annual payments, freeing up funds to be used for other community investments.  Bernardi underwrote that transaction. Rothschild, Wisconsin recently updated its water/sewer plant;  we  raised  several million dollars it needs for that community investment. These are two  examples of communities needing  access to low cost capital to make improvements. The present day municipal bond market allows them to do this.

Second, we assist community banks and individual investors invest capital; we help them manage their bond portfolios relying on our credit research as the foundation.

Lastly, we are a market maker, trading bonds after the  issue has come to market. Markets need liquidity; investors want assurance they can sell their bonds at a reasonable price and timing before maturity- we help provide this liquidity. Our clients are conservative, they regard asset class as their mattress money. Generally, investors appreciate the security municipal bonds offer and many like to invest in local projects.

There are  two key points to make here:

  1. Municipal  market encourages investors to invest conservatively and that is good for all of us.
  2. In our experience, local investment tends to be an excellent governor of behavior; projects tend to be more sensible.

The notion that tax-exemption fosters profligate projects is wrong; sure,  there are situations, but almost universally in my experience over 30 years, communities borrow what they can afford to pay back and tax-exemption allows them to borrow at a lower rate. These are healthy results the market helps to produce.

I want to briefly touch upon the history of the municipal market. And the important role it  has played in the national and local economy. Again, I say to you,  municipal bonds have built America.

A 2013 engineering society study calls for $3.6 trillion in infrastructure  investments  by 2020. Our infrastructure is aging, needs updating.  The municipal  market should continue to have the primary role in making these investments and any contemplated federal policy changes should not result in harming the market. We need  PUBLIC PURPOSE INFRASTRUCURE PROJECTS (roads, schools, water/sewer plants, county courthouse, airports, village halls, public libraries….) After all, 75% of country’s infrastructure is financed with municipal bonds.  Large and small projects are possible and the present day, tax- free market structure is well suited to raise capital for the fragmented needs of the market.

Additionally, bond issuance creates meaningful, productive jobs paying a salary above minimum wage.

Importantly, municipal bond investors comprise a diverse cross section our population, saving for their retirements. It is incorrect to think the municipal bond market benefits only or primarily the wealthy.  The premise is false. I will have more to say on this issue later.

Lastly, U.S. public finance market is envied around the world. The Chinese national government has begun a trial program to develop a transparent, locally controlled  municipal bond market in order to clean up its current, central government controlled system. India has explored developing  a municipal bond market. Certain European governments,   where public finance  historically is controlled by central governments,  are adapting dynamics like our model. I have studied public  finance systems around the world  and none I know of come close to ours when measuring a system’s  economic efficiency, project execution time efficiency, local  control in decision making. Our  system is the “cat’s meow”  of the all the world’s public finance systems!

Turning it upside down, substantively altering it would be a serious misstep.

The history of the municipal bond market runs parallel to this nation’s history in many respects. Tax-exemption was created  in 1913 – helps ensure  “reciprocal immunity” ; the municipal bond market’s  roots go back much further. We have all heard the famous quote: “ power to tax involves  the power to destroy”. These are the words of Chief Justice John Marshall in  McColloch versus Maryland, 1819. The decision limits the ability of a state to intrude on sovereignty of federal government and  vice versa.

In 1894, the Supreme Court ruled in Pollack vs. Farmers Loan Trust that federal income taxes on interest were unconstitutional. Additionally, the decision established the notion of “inter-governmental immunity” which protects state and local governments borrowing abilities from federal government interference. The Pollack decision  is  the reason why when the  16th amendment (federal income tax) was enacted, federal taxation of municipal bond income was prohibited.

This prohibition was written into the law because Congress realized if the  federal government could arbitrarily tax municipal bond  income, then state and local governments would not enjoy freedom from possible federal government overreach. Let’s turn this around: imagine the outcry here in Washington if a state government began taxing income earned on u.s treasury bonds.

RECIPROCAL  IMMUNITY PROVISION, R.I. P. as I like to call it, prevents this from occurring. R.I.P. is fundamental to the federalist system our nation is built around. For this reason, unlike any other deduction, the exclusion of municipal  bond income was codified into law in the Revenue Act of 1913.

Tax-exemption is unique from all  other tax expenditures. Tax-exemption is Not some tax loophole inserted into the tax code in the middle of the night. It is rooted in the federalist system, it is time tested, it has survived multiple recessions, two world wars, the Great Depression and the Great Recession.

So how does the market operate,  why it is attractive for issuers, investors, the general population? First of all, it is a localized market. It is fragmented and this feature is intrinsic to its nature; as long as R.I.P. exists, the market will  remain fragmented. It is attractive for issuers because it’s  relatively deep and liquid market and tax-exempt status allows more affordable funding. Solid quality issuers today borrow at approximately 2.50% (“ aa”, index as of 6/23/14)  for 10 year loan, 3.50% for 30 years.

These low borrowing rates makes financing the new school, the village hall expansion, road improvement project fixing all those winter potholes in your town more affordable. If the market worked poorly, would borrowing rates be this low?

The present day market helps ensure localized control. Inherent in our system,  is this crucial dynamic ……to me, this is the most important feature of our public finance system. There are approximately 50,000 distinct issuers of municipal bonds – look at your local tax bill, most of the line item issuers , issue bonds. The market gives those issuers access to capital , allows them to structure their borrowings the best way to suit their needs.

Your constituents decide IF a school is built, its scope, how to pay for it.

Your constituents decide if the county courthouse should be expanded, how many years to take to pay off loan.

Your constituents decide if the public library, public parks should be built, the  location.

This is a healthy dynamic, and a  very good governor of cost and efficiency.

The market is attractive for investors: Over 70% of outstanding municipal bonds are held by individual investor.

They like to invest in the market for these reasons:

  1. Preservation of principal & low default rates
  2. Over the long term,  it is uncorrelated to economic swings
  3. It offers the opportunity to invest directly in the local community
  4. It offers countless options for investors
  5. And Tax-exempt income is an over-arching reason asset class is attractive

Repeal tax-exemption, cap the exemption at 28% as some proposals call for and  your constituents will see higher taxes, higher fees, fewer capital improvements in their communities, scaled back  projects. If you believe in the principles of federalism embodied in the constitution.  If  you believe state and local governments should have wide latitude to independently finance public purpose infrastructure projects that your citizens need, want and are willing to pay for. Then ladies and gentlemen, radical changes to the present day muni market should not occur.

It is really that simple.

Having said that, our market needs improvement and there are steps that can easily be taken to make improvements. A modified BAB Program would be helpful as a complement, not a replacement to current market. A lot of talk about the success of BAB program. There were many and overall the program was good as it stabilized the market.

But the BAB program had some serious shortcomings, inefficiencies of its own.

The Tax-Credit Option is a non-starter, in my view. The market is thin, highly illiquid, non- transparent. There is minimal investor interest in tax credit market structure.  Tax-credit was offered as a BAB option and it was near universally ignored. Issuers and investors chose not to use it.

So how do we make our market better for Mayor Benjamin and residents of Columbia, SC and  your constituents? Most importantly, the market needs clarity; uncertainty brings higher cost.  And oftentimes, clarity requires singularity.  The  municipal  market needs clarity NOW!

By that I mean tax exemption for public purpose issuance is untouchable. That should be the resounding message. And then clearly define “public purpose”. That should be the topic of debate. Perhaps, it should be narrowed. In my view certain issuance currently tax-free, should be prohibited thereby returning tax money to the treasury.

Secondly, stop talking about and  advancing proposals focused on  partial or prospective repeal; no 28% cap .  This adds to the air of uncertainty and increases borrowing costs for your constituents. Thirdly, increase the Bank –Qualified  limit from its current $10 million cap.  Doing so will increase bank investing in infrastructure projects and should  lower borrowing costs.

Lastly, issuer  disclosure must continue to improve.  It is much better today than what existed a handful of years ago, but there is work to do in this area. I see we have about 20 minutes remaining for your questions so I will end with this, repeating how I began my remarks:

Muni bonds build America. The municipal bond market is very important to this country. We need Congress’ help to build upon, improve what we have here.

Thank you.

July 2, 2014



The municipal bond market’s behavior in 2013 could be summed up by the old saying that the Chinese word for “crisis” – wēijī – is actually composed of two characters representing “danger” and “opportunity.” John F. Kennedy is credited for popularizing this concept in a 1959 speech, and it has since become a staple of motivational speakers looking to inspire their audiences to seize the opportunities that appear in the midst of uncertain times.

This is a great saying, but a little research shows that this is another one of those stories that is a little too good to be true. Wēi does roughly translate to danger, but the Chinese character jī actually is closer in meaning to “crucial/critical point” than opportunity.

In that context, however, wēijī could be an even more appropriate term to use when considering the year 2013:

  • Yields shot up. The 10-year U.S. Treasury moved from a low yield of 1.63% in May to finish the year at 3.02%.
  • Index returns soured. Municipal bond indexes recorded their worst performance since 1994.
  • Great Rotation speculation escalated. Municipal bond mutual funds ended the year with a nearly eight month-long streak of weekly withdrawals. This supplemented the speculation of a “Great Rotation” from bonds into the stock market.
  • Detroit doom looms. Detroit’s Chapter 9 bankruptcy filing has opened up legal questions that could have significant effects on the entire municipal debt marketplace.

Historians indeed may look back on 2013 as having been a crucial point for municipal debt investors. On the other hand, we at Bernardi Securities see it as a time when the fundamentals of our investment process and philosophy – separate account, professionally managed portfolios utilizing rigorous credit analysis and a disciplined adherence to a laddering strategy – have become ever more important to our clients.

In short, we think that this possible crucial point offers real opportunity to the committed municipal bond investor.

Interest rates – Are they finally moving (and staying) up?

Ever since the Federal Reserve embarked on its unprecedented quantitative easing program to force interest rates down to record-low levels, fixed income investors have been awaiting the inevitable return to more normalized levels. 2013 could possibly have been the turning point, as the U.S. economy has finally exhibited signs of breaking out from tepid – though sustained – growth.

We have also seen the Fed make its first tentative steps to ease its flood of liquidity into the market, via its decision in late December to begin tapering its purchases of longer-term Treasuries and mortgage-backed securities.

The yield curve has responded accordingly, as investors anticipate higher rates sooner. This is demonstrated by the steepening of the yield curve, with the tax-exempt municipal curve graphed below. Short term rates are still anchored by the Fed, though longer-term rates have risen as the market anticipates higher growth and inflation – hence, higher yields – in the future.

Source Bloomberg

The obvious question is whether this is the start of a sustained rise in interest rates. Our answer is – we don’t know and we will not speculate. We do not make aggressive interest rates bets, and we certainly have seen a number of very smart analysts prematurely call an end to this low rate environment.

Furthermore, we have seen a number of 50 to 60 basis point increases in rates since the 2008 financial crisis, only to see subsequent rallies in the bond market. Indeed, an unexpectedly weak employment report this month has led to the 10-year Treasury moving back towards 2.75%, which is roughly where it was back in August.

This reminds us once again of one of the strengths of the laddered bond portfolio for the committed municipal bond investor – it takes fear (or overconfidence, for that matter) out of the equation, and replaces it with a disciplined approach to investing. You may recall the December 11th perspective and strategy discussion written by one of our vice presidents, Jeff Irish. Jeff discussed the cost of waiting for rates to rise while money stagnates in near zero-percent money market or ultra short-term bond funds. Investors waiting on the sidelines for an increase in market yields are losing more and more of the “time value” of their money. In the meantime, the owner of a laddered municipal bond portfolio has been receiving a stream of income.

It pays to remember that we are now approaching the sixth year of a zero interest rate environment. We don’t know if any of us could have foreseen this back in September 2008 when Lehman Brothers filed for Chapter 11 bankruptcy. It is also worth noting that Federal Reserve officials have made it clear that while the Fed is beginning to taper longer-term bond purchases, they expect short-term rates to stay near zero for at least a couple of more years.

In light of recent history and continued uncertainty, we maintain that a commitment to the bond ladder gives the investor the best means for seeking income.

The stampede from bond funds and ETFs

As you well know, one of the fundamental rules of fixed income investing is that the prices of existing bonds decline as rates increase. 2013’s decline in bond prices translated into higher yields in the intermediate and longer-term markets. Tax-exempt municipal bonds were affected along with taxable securities, as reflected in the 2.6% loss recorded by the benchmark Barclays Aggregate Municipal Bond index.

The average general and insured municipal bond fund lost 4.1% in 2013, while the iShares National AMT-Free Muni Bond exchange traded fund (MUB) lost 3.44%. Such figures spurred withdrawals from municipal bond mutual funds and sales of muni ETFs in 2013, which forced such funds to sell bonds into a declining market in order to raise cash for redemptions. This in turn led to further weakness in the market and a divergence of fund and ETF prices from net asset value (NAV).

On the other hand, almost all of our separately managed, laddered portfolios did better than the Barclays index, and avoided most of the volatility seen in the mutual fund and ETF marketplaces. As noted in our August 28th piece entitled Outperforming the Madness of Municipal Bond Fund Herds, the separately managed bond account allows for greater control at times such as these. It allows the investor to avoid being swept up in rush of the crowd to the exits; instead, he or she has the ability to select or remove specific bonds from their portfolio, and the timing of such actions. This is particularly helpful when harvesting losses to shield other investment income and capital gains.

The holder of a laddered account actually finds a silver lining in rising rates, in that maturing securities now can be reinvested at higher yields, while soon-to-mature securities can be swapped into higher-yielding longer-term issues. This is one of the most important benefits of this structure for the investor looking for income. Once again, the bond ladder offers great opportunities to the committed municipal bond investor.

Detroit and other discontents

Detroit’s seeking protection from its creditors via a Chapter 9 bankruptcy filing was probably the biggest headline news of the year. We were not especially surprised to see this happen, but what was surprising was Detroit’s emergency manager’s declaration that general obligation debt holders had no priority on claims. In essence, such debt holders were told to get in the same line for payment with everyone from city employees to the City Hall coffee vendor.

If this stands, it would violate all understandings of how general obligation debt is prioritized in a bankruptcy filing. Our president, Ronald P. Bernardi, wrote an extensive piece on this on December 20th that is well worth reviewing again. Among the points he makes is that some national precedents could be set by the eventual rulings of the U.S. Bankruptcy Court overseeing Detroit’s filing.

Investors have speculated on which other issuers may experience similar distress. An August 26th front-page Barron’s article detailed the weak credit profile of the commonwealth of Puerto Rico, leading to a significant selloff of its debt. The pension funding woes of the state of Illinois also have come under increasing scrutiny. These problems have not only put pressure on Puerto Rico and Illinois state issues, but have weighed on the municipal market overall.

On the other hand, this has reinforced the importance of another key part of the Bernardi process – a rigorous attention to credit quality. Our managed accounts have never invested in Detroit, and we have steered clear of Illinois state debt and Puerto Rico issues for several years. Paying close attention to the three pillars of credit research – deal purpose, deal structure, and underlying credit quality – has enabled our clients to avoid both widely publicized credit issues and others less famous, but no less severe.

Bernardi’s credit research team also offers opportunities as well as protection for our investors. As noted, we have avoided Illinois state debt for some time; however, there are many well-run municipalities in Illinois whose debt trades at higher levels due solely to being located in this state. Our knowledge of such municipalities allows us to invest in this debt and capture these higher rates for our clients, while maintaining a vigilant eye on their ongoing finances to make sure that both interest payments and principal are protected. We consider our clients’ portfolios as their “mattress money,” and always act with that in mind.

Moving on, and benefitting, from 2013

2013 was a challenging year for the fixed income market, both taxable and tax-exempt. The upwards shift in the yield curve, large and continuing withdrawals from municipal bond funds and ETFs, and the headlines coming out of Detroit and other pressured issuers can leave the investor justifiably wondering if the municipal bond market is indeed in dangerous territory (or wēi). Particularly when looking at the increase in intermediate and long-term rates during the year, the issue of whether we are at a crucial or critical turning point (or jī) for the market can be vigorously debated.

On the other hand, the Bernardi commitment to separate account, laddered portfolios offers an opportunity to those committed to seeking income, and especially tax-exempt income. Almost all of our portfolios handled the decline in the municipal market better than the primary Barclays index or the average mutual fund or ETF. The laddering structure means that our clients have bonds that will soon mature and can be reinvested at new, higher yields. Finally, our credit research process helps our investors avoid pitfalls like Detroit, while finding quality issuers offering above-market yields.

Bernardi Securities is now entering its 30th year of turning potential “danger” into “opportunity” for our clients. We remain committed to doing so for the benefit of our clients in the years to come.

Thank you for your continued confidence in our bond portfolio research and management process. Please always feel free to contact us if you have any questions, or would like us to review your portfolio with you.

Scott R. Rausch, CFA
Portfolio Manager
January 22, 2014