Rieger Report®: Municipal Bonds in this “Dystopian” Market

Municipal Bonds in this “Dystopian” Market

  • A fifteen-year trend of high demand for tax-exempt municipal bonds has dramatically changed as a result of the Coronavirus driven market. While day to day demand has varied as equity and Treasury market volatility remains high, this trend is both worrisome and an indicator of potential opportunity.
  • The municipal bond market has shifted from a risk off, high demand, low supply market to a market where demand has fallen, supply is hampered and more selling from customers than customers are buying is occurring.
    • Sounds odd? More selling than buying? Doesn’t this need to be the equal? Not necessarily. If dealers buy bonds from customers more often than selling bonds to customers that can be an indicator of customer sentiment or their desire to buy municipal bonds.
  • I’m watching both the daily trade data published by the Municipal Securities Rulemaking Board (MSRB) and the 45 day aggregated trade data BondView Buy/Sell Index reports. It’s important to note that during the Coronavirus market so far, the BondView Buy/Sell Index has shifted from a long standing 2:1 ratio (two buys for every sale from a customer) to a 4:3 ratio of four buys to every three sales.

BondView Muni Buy/Sell Index (www.bondview.com)

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Sources: BondView. Past performance is not a guarantee of future results. Data as 3/17/2019.

The BondView Buy/Sell index tracks about 1.2 million bond transactions, as reported by the Municipal Securities Rulemaking Board (MSRB), from the prior 45 trading days and helps investors spot value and risk in the complex municipal bond marketplace. Simply put, the BondView Buy/Sell Index is a ratio of the trades that have occurred as buys and sells. Prior to the Coronavirus driven market, the ratio was approx. 2:1 buys v. sells.

As the Coronavirus market has unfolded, the ratio has shifted to 4 buys v. 3 sells or a 4:3 ratio. This indicates a significant negative shift in investor sentiment.

I am watching this indicator, as well as other factors, to identify potential potentially oversold opportunities.

BondView Muni Buy/Sell Index: 45 Day History

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Sources: BondView. Past performance is not a guarantee of future results. Data as 3/17/2019.

BondView Muni Buy/Sell Index: Monthly History (2005 – Current)

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Sources: BondView. Past performance is not a guarantee of future results. Data as 3/17/2019.

BondView Muni Buy/Sell Index: Yearly History (2005 – Current)

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Sources: BondView. Past performance is not a guarantee of future results. Data as 3/17/2019.

Data Resources Used in this Report:

Analyst Disclosure:

  • At the time of this writing, JR Rieger owns individual municipal bonds and a bond fund.
  • JR Rieger participates on BondView’s Advisory Board.

 

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