The Blog of Love
The Blog of Love
2008
Municipal-bond fund shareholders might feel like they've lost the key to the city.
The credit crisis is striking state and local governments hard. Normally these entities would issue tax-exempt bonds to offset the shortfall and continue to finance public-works projects and daily operations. Accordingly, muni-bond funds are considered supersafe investments, since a government is less likely to go bankrupt than a company.
With the economy in the dumps, local governments' fiscal needs are greater than ever. Trouble is, buyers are scarce even for top-drawer debt.
And when there's too much supply and not enough demand, there's only one natural outcome: Prices of muni bonds are tumbling, along with the shares of mutual funds that invest in them. Some muni-bond funds are down 30% and more so far this year.
So what does this mean for city and county governments? Fewer fire stations, a tougher time building (and staffing) schools, public works projects go unfunded, and other reductions in service, expansion or renovation.
If there's a silver lining to this, it's that muni-bond funds may be oversold. Bargain-hunting managers can upgrade their portfolios with more of the highest-quality debt -- investments that likely will continue to hold up better in this downturn and come through the storm intact.
Admittedly, that's small comfort to money-losing muni investors, and even smaller comfort for the public sector workers themselves. With apologies to Ernest Lawrence Thayer: Oh, somewhere in this favored land, the sun is shining bright... But there is no joy in Mudville -- its bond holders have struck out.
Continued Trouble For Municipalities
12/12/08
What’s the latest trouble for municipalities? Read on and evaluate Dana’s biggest concern.