Shelley Bergman Sees Opportunity in the Muni Bond Market
Bergman commented on the current market environment where stocks have had a nice run, interest rates are feared to be moving higher, and we’ve seen somewhat of a storm in the muni market with the average long-term municipal bond down in price from 12-20%.
Bergman said there have been liquidations in the muni market because of a move up in rates, press regarding Detroit, along with uncertainty regarding bonds in places like Puerto Rico.
Liquidations by bond managers are taking place in markets where you can’t get real liquidity, Bergman stated. You can lock in yields around 5 to 5 1/4 percent tax free which is equivalent to 10% pre-tax, he added. Bergman compared the current yield on munis to long-term stock market returns.
The interview (available below) continued with Bergman comparing the muni market sell-off to a clearance sale, his view on tax rates in the future, what type of muni bonds investors should focus on, and what has changed in the last six months.
SMA Comment: The collapse in muni bonds has created some interesting opportunities. Personally I’ve purchased shares of the Market Vectors High-Yield Muni ETF (HYD) and SPDR Nuveen S&P High Yield Municipal Bond ETF (HYMB) over the past several weeks. Bergman is probably talking more about bonds such as those held in an ETF like Market Vectors Long Municipal Index ETF (MLN). I don’t see where he gets the 10% pre-tax return figure since MLN will provide an equivalent yield to a taxable bond of 7.7% for those in the highest tax bracket of 39.6%.