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2010 Forecast: Muni Yields to Rise, BAB Issues to Double
Municipal yields are likely to rise in tandem with the rest of the fixed-income
market in 2010. Strong investor demand for safe, tax-exempt income and a scarce
supply of Municipal bonds have driven down market yields. We expect this to
correct as new supply is issued.
The “January Effect” is common in the Municipal market. What isn’t common,
however, is the forecast for Build America Bonds to nearly double this year.
We’ll see what effect issuing $100 billion in BABs will have on Municipals. The
Muni yield curve is sure to steepen with the Treasury market yields.
The big question this year: Will Congress allow BABs to be used to refund
outstanding tax-exempt bonds? If so, it could create a surge of primary
issuance to unprecedented heights. This would have a direct relationship on
tax-exempts, and tax-exempt yields would drop.
10-Day
Yield History of U.S. Treasuries and
Bond Buyer 40 Municipal bond Index |
| |
30yr |
10yr |
5yr |
2yr |
B.B. Index |
| January
8 |
4.707 |
3.818 |
2.573 |
0.964 |
5.33 |
| January
7 |
4.686 |
3.825 |
2.613 |
1.028 |
5.33 |
| January
6 |
4.688 |
3.823 |
2.593 |
0.996 |
5.34 |
| January
5 |
4.610 |
3.763 |
2.563 |
1.012 |
5.35 |
| January
4 |
4.644 |
3.817 |
2.637 |
1.068 |
5.40 |
| January
1 |
4.629 |
3.837 |
2.681 |
1.140 |
5.36 |
| Dec
31 |
4.642 |
3.839 |
2.681 |
1.139 |
5.36 |
| Dec
30 |
4.610 |
3.788 |
2.617 |
1.083 |
5.36 |
| Dec
29 |
4.638 |
3.799 |
2.569 |
1.083 |
5.37 |
| Dec
28 |
4.690 |
3.842 |
2.600 |
1.043 |
5.37 |
California Bonds currently trade at the following yields:
| |
30yr |
10yr |
5yr |
1yr |
| Cal Insured High
Grade (par coupon) |
4.74 |
3.50 |
2.00 |
0.30 |
| Cal Non-Rated |
7.00 |
5.75 |
5.00 |
3.00 |
Short Term Rates:
CA Exempt Weekly Variable Rates: 0.10%
Taxable Weekly Variable Rates: 0.23%
The information contained herein is based on sources that E. J. De
La Rosa & Co., Inc. (DLR) believes to be reliable, but it is neither
all-inclusive nor guaranteed by DLR, and it may be incomplete or condensed. The
information and opinions herein, if any, are subject to change without notice,
and DLR does not undertake to advise the reader of changes in opinion or
information. Some of the securities DLR follows may be unrated or below
investment-grade municipal bonds, or are high-yield corporate bonds, that
typically involve a higher degree of risk and more volatility than rated or
investment-grade municipal bonds, or investment grade corporate bonds.
Therefore, certain debt securities discussed in this update may be unsuitable
for some investors, depending on their specific investment objectives,
financial condition, and needs. This update is for informational purposes, and
under no circumstances is it to be construed as a recommendation, an offer, or
the solicitation of an offer to buy or sell any particular debt security. DLR
may make a market in or trade for its proprietary account the securities
discussed in this update. Also, DLR may have been a manager or co-manager of a
public offering of municipal bonds or other debt securities within the last
three years for issuers named herein. DLR or its managing partners, directors,
and employees individually, or their family members, may have either long or
short positions in the securities mentioned, and may purchase or sell these
securities from time to time in the open market or otherwise for their own
accounts or the accounts of others.
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