In a piece outlining 5 ongoing risks to the muni market, Citi notes the following:Third, one key component of the feedback loop certainly appears to be intact: the tendency of some relatively new observers of the muni market to use the recent market weakness and investor nervousness as the starting point for scare stories that have little or no analytical content but seem “logical” during a period of market weakness and budgetary pressures. We continue to receive more inquiries from relatively sophisticated investors than we ever have before in our 35+ years covering the muni market as to what the likelihood is that Issuer X will miss a debt service payment. Quite simply, investors are quite nervous, and it appears observers who might benefit in one way or another by feeding those fears are out in force, food in hand.
Meanwhile, Citi notes four other reasons you should still be a bit nervous, despite the fact that munis actually had a good week:
- In January, issuance was very light, so there wasn’t much supply.
- There’s still tons of media hype about how bad the shape of governments are.
- (The aforementioned feedback loop).
- Never before has investing in munis required so much due diligence.
- Meanwhile, the ructions at government levels are in turmoil like never before.