September 1, 2016 — With about two weeks to go until the stated deadline for Congress to address the automatic spending cuts set to be imposed on most federal agencies, one component that may have slipped under the radar for many insurance companies is the impact that the “Fiscal Cliff” (as these mandatory cuts are being called) would have on Build America Bonds (BABs).
Tag: Municipal Fixed Income
Build America Bonds — Promises Made, Promises Broken
March 1, 2013 — The Build America Bond (BAB) program, established under the American Recovery and Reinvestment Act in 2009, was touted by the Obama Administration as a more efficient way for municipal issuers to sell bonds to the public, while maintaining revenue neutrality for the Federal government’s balance sheet. The proponents of this program claimed BABs to be a new era in municipal finance that would lower borrowing costs and increase demand for municipal bonds. With the expiration of the program at the end of 2010, a total of $182 billion of BABs where issued, all of which were structured as direct-pay. In an effort to restart this program, President Obama is proposing a similar plan called “America Fast Forward” which would provide a reduced interest rate subsidy of 28%.
Sage Advice Special Report 1Q2008
March 31, 2008 — Structured investment vehicles, or SIV’s for short, were created by offshore investment companies that sell short-term securities to purchase higher yielding long-term bonds and profit from the positive carry between the two. For SIV managers, longer dated securities such as mortgage backed and structured products were utilized to maximize the spread between the short and long positions. In turn, money market and short dated funds invested in the short dated paper sold by the SIV issuers due to the attractive yield relative to other short term products as well as its perceived safety and liquidity. The rise in market volatility that started at the beginning of 2007, shown below in the VIX chart, caused liquidity to quickly dry up and investors’ appetite for risk to suddenly wane.
A Curve for All Seasons — Taking Advantage of Municipal Bond Yield Curve Trend
September 30, 2007 — Traditionally, the shape of the Treasury yield curve has a positive slope; longer dated securities offer higher yields than shorter dated maturities. In normal market environments, this relationship applies to all yield curves such as the mortgage and corporate markets, where the yield spread over Treasuries increases for longer maturities. The main reason for higher yield or spread is to compensate the investor for the added risk of inflation and/or credit risk associated with the issuer. However, there have been times when the slope of the yield or credit curve has become flat or inverted. Typically, a negative yield curve (short rates higher than long rates) has been a precursor to an economic recession or slowdown. In this environment, a tight monetary policy and a flight to quality are a result of a projected slowdown in growth and inflation leading investors to accept a lower yield for longer dated securities. In contrast, the Municipal yield curve has been able to maintain a positive slope over time, in spite of the shifting shape of the Treasury yield curve.
Municipal Bond Portfolios: The Case for Active Management
October 1, 2006 — Why should investors employ active management for their municipal bond portfolio? This is a question posed by many individuals who want tax free income. Despite the perceived safety and stability of municipal bonds, active management can add incremental value.
Sage Advice Special Report — Tobacco Obligation Bonds
June 1, 2006 — Over the past 24 months, municipal bonds have had a stellar run relative to other asset classes on an after-tax and risk adjusted basis. In addition to the municipal market’s overall return, the tobacco obligation bond sector has experienced double digit returns, while other sectors have realized comparatively lower returns. This extraordinary performance, driven primarily by event risk, had a significant impact on the Lehman Municipal Long Bond Maturity Index’s return. In this short report, we examine the recent historical effects of tobacco obligation bonds on the Lehman Broad Municipal Index
Hail Muni’s! The Overlooked Asset in Allocation
July 1, 2003 — The volatility of the markets can sometimes blur the relative value of good, steady performers in the investment universe. This phenomenon has been particularly evident with regard to the striking performance offered by municipal bonds in recent years. Indeed the cocktail chit-chat, which most employ to mark territory or illustrate success in the market, rarely contain stories about that municipal bond that really pushed it or that tax-exempt bond stash that took some lucky investor to the moon. But, it is well worth noting that in the midst of all the hoopla about equity’s returns during the last decade, muni’s have generated tax adjusted returns close to or better than many of the key equity indices over most time periods since the early 1990’s. Moreover, municipal securities have provided greater tax adjusted gross returns than the broad investment grade, high yield, and convertible bonds markets for most time periods during the last 10 years.