A More Open Playing Field in the Municipal Bond Market

August 4, 2010

For investors seeking to actively manage their portfolios, John Lee, of 16th Amendment Advisors, suggests they consider the municipal bond market.

“Since 2008 the amount of risk capital dedicated to municipals is down significantly. Banks’ proprietary traders as well as hedge funds are far less active than they were several years ago,” said Lee, suggesting a more open playing field for muni bond players.

According to Lee, the increased variability in credit spreads that has characterized the muni bond market since 2008 offers more options for diverse trading activity.

“The separation of the different ratings was sort of painful for people who thought they owned AAA-rated bonds, but who subsequently owned A-rated securities,” Lee said. “However, there are many more trading opportunities because of the granularity in the ratings.”

Lee also points to Build America Bonds as a viable muni bond investment option, a good portion of which have been sold to non-U.S. investors.