Should you consider municipal bond funds?

Transcript

Greg Davis: Paul, it is great to have you right here currently to communicate to our clients about what’s been going on in the municipal bond market. You know, we’ve seen a fairly important quantity of problem close to liquidity disorders in the marketplace. Enjoy to get your perspective on what you fellas are looking at as the head of the municipal bond group.

Paul Malloy: Absolutely sure. So what we’re looking at is a fairly immediate cost adjustment just as we’ve seen in quite a few other marketplaces. And aspect of that in the municipal market is because of to the quite wealthy stages we went into this at. And on the other aspect is traders needing dollars for many reasons these types of as rebalancing into fairness portfolios. And you have got some other shorter-expression players in the municipal marketplaces that are demanding liquidity. So what that has carried out is put some stress on yields to go upward as traders are demanding liquidity into the product or service, but in the long run this immediate cost adjustment is a fantastic point.

Greg: And when you assume about for long-expression traders, better yields need to be a fantastic point for all those traders, appropriate Paul?

Paul: Unquestionably. So, to get the true advantage of the municipal asset course, you need to have to be a long-expression owner. It’s all about creating tax-totally free cash flow, and the only way you get to create that tax-totally free cash flow in excess of time is by keeping it in excess of time and seeking by any bits of cost volatility. So you have got a seriously one of a kind possibility now to lock in some fairly large yields tax-totally free cash flow for the long run.

Greg: What is your get on the Fed’s new credit rating and liquidity services, what effect are you fellas looking at in conditions of the market…how are the marketplaces responding to that?

Paul: Well, we applaud the Fed’s steps to maintain money flowing by the method. You know the money market liquidity facility, it was great to have it expanded to deal with municipals so that it was handled just like just about every other money market fund. It was entirely inclusive. The other credit rating services that were being introduced are delivering ancillary advantages that as all those marketplaces have firmed up, municipal marketplaces are seeking quite appealing in comparison to a good deal of other fixed cash flow asset courses. So, you are acquiring a good deal of cross-in excess of consumers intrigued in the municipal area.

Greg: So, Paul, supplied the current market atmosphere, what suggestions would you give to clients contemplating about or investing in munis at this position in time?

Paul: Yeah, I would say, assume about why you get into munis to start with. It’s got seriously low historic default rates and you get tax-totally free cash flow. So, appropriate now, with yields where they are, you have the potential to lock in some quite wonderful yields to get that tax-totally free cash flow. You can make investments on a diversified basis to remove even the smallest bit of default risk and hold it for the long expression.