Salient to Investors:
Peter Hayes at BlackRock said:
- Rising demand for munis is an opportunity to scale back on lower-rated municipal debt as a strengthening economy raises the prospect that interest rates will rise in 2013. When interest rates rise, investors will move back to higher-rated securities and away from speculative-grade munis.
- Buy munis with a higher credit grade, from 4 to 6 levels below top-rated securities.
- Market liquidity is still very good.
- 10-year T-yields will rise to 2.2 percent by year-end.
The yield gap for 10-year tax-exempt munis rated BBB has fallen to 0.97 percent, near the least since September 2008.
Barclays said high-yield munis earned 14.6 percent in the past 12 months versus 6 percent for all munis.
From 1970 to 2011, an average of 7.9 percent of munis that were sold 10 years before or earlier and were rated junk by Moody’s defaulted, versus 0.08 percent for investment grade.
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