The finances of many state and local governments are just a mess. Huge budget gaps, hard decisions about what programs to cut, threats of higher taxes and municipal layoffs. You would think investors wouldn’t want to touch municipals with a ten-foot clipped coupon.
But as Newswires reporter Stan Rosenberg reported today, pent up demand and an appetite for still decent yielding maturities led to the strong sales today of $4 billion in new securities. Another reason – investors who missed out on the 14% gains in munis last year – the best in the fixed-income world – did’t want to miss another chance. The pros are forecasting new issuance could reach $450 billion this year. But buyers should be very selective. Yes, very few municipal issuers have ever defaulted. But municipalities will feel the brunt of the financial crisis much later than other sectors. And there is more pain to be felt on that front.