The Fed’s Mini-Muni Bailout And Why It Matters

The Fed’s Mini-Muni Bailout And Why It Matters

The Fed stepped up its multi-sided firefighting efforts on Friday, moving in to effectively backstop the muni market as economic disruptions from coronavirus containment efforts threaten state and local governments. Some munis are now included in the money market liquidity facility announced earlier this week, which just means the Fed will accept them as posted collateral for funding to banks. "The Federal Reserve Board on Friday expanded its program of support for the flow of credit to the e
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4 thoughts on “The Fed’s Mini-Muni Bailout And Why It Matters

  1. One thing to be careful of is the discounts on high yield muni ETFs or for that matter any municipal fund in a market like this. Often times the pricing lags what is actually going on in the market (I know I have priced bonds for a living at one time) and price evaluations is extremely difficult because the market is so illiquid and disjointed. What is actually happening in the market can be more accurately reflected in the ETF. This is a long winded way of saying the ETF may not be trading at as big a discount as reflected by the numbers
    you see. Also of note is that these ETFs are constructed with a 25%-50% sleeve of investment grade rated municipal bonds in the BBB-A category as a safety valve. That said a large discount likely indicates some sort of discount in the space.

    1. I agree. I have noticed, even as a participating amateur, if you will, that bond prices, especially for munis, often seem to be sticky and slow to react to certain market changes, especially when they are somewhat thinly traded. I really don’t look for the NAVs and the prices for muni CEFs to be more settled and jointly reflective of intrinsic values for at least 1-2 months. As much as I would love to jump into this market, I am 75 and love my cash hoard more, at least for the moment. For sure, right now, “nobody knows anything.”

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