The Phaserl


Federal Reserve Economists Warn About Municipal Bond Market

from Economic Policy Journal:

Although not coming out with a full warning about the municipal bond market, some New York Fed economists come pretty close to warning just that. It’s probably as far as these economists could go without getting fired.

Given this analysis along with the earlier analysis by these economists that (my bold):

 ….there has been some recovery in the state sector, but we expect that the hangover from the recession will affect both state and local governments and the economy for years to come. Some of the actions taken to address short-term funding needs can increase the severity of the long-term structural challenges that states and localities face, including underfunded pension plans and deficient infrastructure stocks. Until these challenges are successfully resolved, the state and local public sector may continue to be a drag on economic activity in the years ahead.

This is likely to be the closest you are going to get from the Federal Reserve itself that the municipal bond market is a minefield that investors stay away from. What’s most intriguing is that these economists show the graph which displays that 75% of municipal bonds are held either directly or through muni bond funds by individuals. Could they be suggesting that if muni defaults pick up there could be a run out of the muni bond market? As far as I am concerned, reading between the lines, that is exactly what they are saying.

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1 comment to Federal Reserve Economists Warn About Municipal Bond Market

  • David Liberty

    Now your talking. Bonds are the blood of the financial beast.The bond market and the stock market are the two most important pieces of the capital market. While the stock market is mostly known as a barometer about where the economy may be headed, the bond market is highly regarded as an indicator about how the economy is doing now.

    The stock market as an equity market focuses primarily on predicting future earnings of corporations and the bond market as a debt market cares more about current interest rates that are the concerns of many market participants beyond corporations. The size of the bond market is several times the size of the stock market.

    tic tic tic tic tic tic tic tic …

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