Dian's Column
Dian's Archive


Muni Buying

By Dian Vujovich

Municipal bonds. The higher your tax bracket the more you’ve got to love these almost-always-totally tax-free fixed-income investments.

As a fan of municipal bonds in general, I say that the more one can learn about the states, governments, municipalities etc., issuing them, the better off their portfolio will be. To that end BlackRock, the global investment management firm, has a report muni investors might enjoy particularly given the state of our economy.

Titled “BlackRock Municipal Bond Market Special Report: The State of the States”, what follows are a few points from the piece. Keep in mind, the info represents the opinion of one investment management company and that, as always, nothing in the investing arena is craved in granite with data subject to change quicker than almost imaginable.

That said, here are a few excerpts:

“While the financial condition of individual states is likely to worsen, BlackRock believes the predicament in which states currently find themselves is cyclical and that credit fundamentals will strengthen as the economy starts to heal. State governments possess unique powers that enable them to act quickly to restore budgetary balance and fiscal integrity. While local governments also possess such powers, their options are more limited. With the “margin of safety” deteriorating for municipal governments, however, timely payment of debt service could be at risk for local issuers…

-“The likelihood of default on general obligation (GO) debt by any state remains extremely remote despite the severity of the economic downturn. State governments cannot declare bankruptcy….”

-“Local governments have a higher risk of default and may declare bankruptcy, but bankruptcies, if any, will be minimal and isolated to mismanaged or weak credits…”

-“As monopoly providers of critical services, states can exercise unique powers to tax and to cut or shift spending in order to balance budgets…”

-“Like state GO bonds, large dedicated tax bonds and traditional revenue bonds for critical purposes remain default-remote…”

-“Credit quality does differ among regions and states, but the margin of safety between credit weakness and default is immense for all 50 states…”

-“Credit quality among local governments varies more widely relative to state governments and, therefore, credit analysis of local governments demands greater attention…”

-“As it did during past recessions, the federal government is providing assistance to state governments. The size of the recent stimulus package is unprecedented, but the aid alone will not enable states to balance their budgets…”

You may read the report in its entirety at:
http://www1.blackrock.com/eIndex.aspx?cmty=ind&m=ind_3&m1=ind_3_6&m2=ln_2&lo=4&eid=1111059094 .

To read more articles, please visit the column archive.

[ top ]