On December 16, 2015, the Federal Reserve announced that it was raising interest rates. More specifically, it raised its target for the so-called federal funds rate. Before talking about just what is the federal funds rate, we’d like to point out what it is not: It is not mortgage rates It is not bond interest rates It is not muni bond rates It is not T-Bill rates It is not CD rates It is not the ...

readmore

Over the weekend, the Greek Prime Minister broke off further talks with the European Union group over restructuring its debts. The European Central Bank froze funding to Greek banks, forcing them to shut their doors for a week to prevent a widespread bank collapse in Greece. This morning, stocks in all global markets are down, albeit not much more than we sometimes experience from time to time. US interest rates ...

readmore

I received a copy of a research newsletter from Brown Brothers Harriman, a prominent private bank based in New York. The piece is titled, "Does G.O. Spell Go?" and makes the valid point that municipalities around the country are under credit stress, and that general obligation ("GO") bonds are not always as secure as they've always been perceived to be. BBH lumps Stockton and San Bernardino, CA with Detroit, MI as "...examples of ...

readmore

We get electronic alerts from our clients' security custodians (Schwab and Fidelity) whenever something happens that they judge warrants our attention. Last night, we received 233 separate alerts -- each of which delivered the news that Moody's had upgraded its credit ratings on a particular municipal bond. The ratings involved school district voter-approved general obligation (GO) bonds, and the ratings went from the existing Baa1 up to A3. As we have ...

readmore
Dec
04

Way back in 1996, Alan Greenspan famously uttered what would become his signature phrase, raising the notion that it was possible that stock investors would exhibit “irrational exuberance,” driving asset prices high enough that the inevitable correction would lead to “…prolonged contractions.” As we now know, Greenspan quickly rejected his own conjecture and concluded that, no, it was not possible that such bubbles could occur and that, even if they ...

readmore

Imagine you could make a time-jump a few years out into the future. What might you expect to be different? You'd know what the iPhone 7 looks like. You'd know whether the Ravens and Niners had a rematch, and who won. You'd also know the level of interest rates after the Fed winds down its bond-buying program. While nothing is certain, most investors assume that interest rates will be higher in a ...

readmore
Feb
20

The Federal Reserve Board of Governors today released minutes from its January meeting, at which it apparently discussed the fact that it might not be able to continue its current pace of bond market manipulation. In case you've forgotten...the Fed is buying up hundreds of billions of dollars of public and private bonds in order to artificially hold interest rates low. It pays for this by flooding bank vaults with ...

readmore
Aug
29

Summary of conversation we have with clients a few times a week: Aren't you worried about interest rates going up? The ten-year treasury is only paying 1.7%...rates are probably probably going to go up, and bond prices decline when interest rates go up. Why are you buying 10-year muni bonds? Simple answer: Because the muni bond yields are high enough to provide us a fair rate of after-tax return, even if ...

readmore

This week, a research team from the New York Fed released a report that correctly notes that municipal bond default rates are far higher than normally reported. Moody's counts 71 defaults in the past 40 years; the Fed report counts 2,521 defaults! At first blush, that seems like muni bonds are a lot riskier than we thought. But the report serves to confirm what we have been saying for years. There ...

readmore

Since the Major League baseball season is entering the mid-summer doldrums, we amuse ourselves every morning with the financial pages instead of the sports updates. And the play-by-play from Europe rivals any MLB division race. Will tough stalwart Angela Merkel hold off the aging southern European challengers, whose entire populations seem on the verge of a team-wide retirement at the ripe old age of 50? The story line changes daily ...

readmore