Municipal Bond Markets: 'A Dangerous Place to Invest'
May 2011
Worst-Spread Study Shows Terrible Conditions for Investors, Demonstrates Need for Formal Muni Market
SAN FRANCISCO – May 9, 2011 – A MuniMarket.com study of the worst municipal bond spreads for the second half of 2010 (www.MuniMarket.com/WorstSpreads2ndH2010.aspx) clearly proves that the muni markets are a dangerous place to invest, according to the site’s founder, Kevin Olson. “Spreads are terrible – 10, 20-point spreads are common – and this is just looking at same-day cross trades,” Olson said. “The muni markets have never been a fair marketplace but current conditions for investors are as bad as they’ve ever been and getting worse.”
Investors are at a severe disadvantage because most underwriters of municipal new issues do not provide any liquidity or bids, Olson explained. Municipal bond investors wanting or needing to sell are completely at the mercy of broker/dealers with no interest in providing a bid. “They go out and find another broker/dealer to bid on your bond, and that broker/dealer may in turn go to a third, and so on. If you were to purchase $100,000 of a bond in the morning, later that same day your investment could be worth only $75,000 or less,” Olson said.
The MuniMarket.com study lists the 100 worst bid-offer, offer-side and bid-side spreads for muni market trades between July 1 and December 31, 2010. Olson said that his analysis provides a much more accurate overview of the muni market climate than the recent Municipal Securities Rulemaking Board (MSRB) trade-data study. “The MSRB only concluded that there were more trades in small amounts, in others words, more individual investors,” Olson said. “If the MSRB cared to really examine market conditions it would have provided worst-spread data.”
“This worst-spread data only strengthens my argument for the creation of a formal market for municipal bond trades,” Olson said. “A market would bring efficiency and fairness to the muni markets, benefitting both issuers and investors.”
MuniMarket.com, the first exchange platform for municipal market bid-wanteds, provides a free, easy-to-use, online solution for bondholders needing a bid-connect with investors wanting to buy. Olson, a well-known investor advocate and public finance watchdog, also operates MuniAdvocate.com, a Web site devoted to improving municipal public finance and helping municipal market investors. For more information, contact Olson at MuniMarket@live.com or MuniAdvocate@live.com.