It’s stunning that munis actually had a good week this week, because the bankruptcy/default/insolvency meme has been exploding, with scare-headlines everywhere.The latest are coming out of the Congress, and they pertain to this idea that state ought to be allowed to go bankrupt and restructure their obligations (currently they can’t legally, although cities and towns can).
For whatever reason, Newt Gingrich — who is almost certainly running for President — has made this his big theme, and he’s been urging Congress to get moving on a state bankruptcy bill. And now, according to Reuters, he says it’s coming next month.
It’s not clear how far it will go. We can’t imagine the Senate passing a Gingrich-borne idea, let alone Obama signing it. But it does mean that the headlines about states going bust will continue for a while, probably causing more accelerated outflows of muni funds.
On the other hand, there’s no question that sophisticated investors are getting more intrigued by munis, thus we’re seeing a handoff from tax-focused average investors to sophisticated yield hungry ones.
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