Regular readers know that we abhor muni bonds as much as anyone. But my interest has recently been piqued by calls for short-term rallies from sharp guys like David Rosenberg and Steve Sjuggerud, who have cited the market as oversold due to the abrupt end of the Build America Bonds program.
A somewhat misleading Bloomberg headline reads: Investors Pull Assets From Muni Bonds for 14th Straight Week. But diving into the article, we see the news is actually more bullish than bearish for munis:
The redemptions were the least that investors made since the week ended Dec. 8. Outflows have totaled $25.8 billion since mid-November, according to Lipper, a Denver-based research company.
“We see it headed in the right direction,” said Matt Dalton, chief executive officer of Belle Haven Investments Inc. in White Plains, New York, who oversees about $600 million in municipal assets. “The fact that you’re seeing it dwindle is a good sign.”
And the chart of good old MUB appears to concur that a short term bottom has been found:
The situation has gone from bad, to less bad in munis. (Source: StockCharts.com)
Going long munis would be a contrarian play if there ever was one. While the long term outlook is miserable, the short term could be bright as this situation goes from really bad, to less bad.
Related reading: Robert Prechter on why muni bonds are ultimately heading to “Bolivia”, to paraphrase Mike Tyson.