Rally Opportunity & Fed Watch Wednesday
Despite continual mutual fund outflows, the municipal market has kept pace with a significant rally in the Treasury market over the course of the last two months. Broadly speaking, municipal bonds are still inexpensive compared to Treasuries as the muni/Treasury ratio – the municipal rate divided by the corresponding Treasury rate – stands at 108%. Overhang of headline risk stemming from financial meltdowns in Detroit, Puerto Rico and places yet to be named will likely cause this high ratio to persist for some time. This dynamic presents an opportunity for fixed income investors.