Skip to comments.Muni-Bond Default Estimate $100 Billion/Flacks Pronounce Fear "Overblown"
Posted on 03/02/2011 8:05:43 PM PST by DeaconBenjamin
Well-known economist Roubini announced Wednesday that there may be $100 billion of municipal-bond defaults over the next five years. His comments echo analyst Meredith Whitney's claim that there will be an enormous wave of defaults.
"Roubini seems to use more of a doomsday production," said Matt Fabian, managing director of Municipal Market Advisors at The Bloomberg Insurance Portfolio Strategies Conference. "If you are going to make a prediction, be conservative. In terms of defaults, we have seen very few in the market and these have been smaller transactions."
Terry Goode, head of tax-exempt research and municipal fixed income at Wells Capital Management said that it is important, "not to paint the muni-market with one large brush."
Goode explained that defaults in Harrisburg, Pennsylvania and a default on a bond tied to the Las Vegas monorail system are "special situations" that involved private investors. He added that technical factors caused the municipal selloff and fear.
"All this headline risk of budgets does not contribute to wide spread defaults or contagion affect," said Goode. "Defaults peaked in 2008 peaked in 2009, and will be down in 2010. You are going to see some pressure, but we do not see a wide spread defaults."
Joe Darcy, head of the municipalities sector of Hartford Investment Management(HIG) agreed that the credit stresses on the municipal markets right now are normal.
"The reality is that it is the nature of the asset class," said Darcy. "The risk inherent in that stress is manageable for issuers and investors."
Fabian said that $38 trillion of outflows in the municipal bond funds over the past three weeks is mostly due to credit fears and interest rates fears.
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I remember. I often lent my voice to the “bubble is about to pop” side. I found it incredible how obstinate some were in the face of facts that could not be disputed. Yes, there were always questions about the specifics of “when” and “how deep,” but the fundamentals of the bubble were obvious.
It was both frustrating and sad.