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  • My Interview with on Puerto Rico and the Overall Muni Market


    I recently appeared on with Gregg Greenberg to discuss the situation in Puerto Rico and what the muni market holds for individual investors.

    The Federal Reserve recently announced that they plan to end their bond-buying program, known as quantitative easing or QE, by October of this year, according to the Wall Street Journal and our own projections here at Hennion & Walsh. This move has broad market implications, but in the short term I don’t believe it will change the overall market for munis. When asked about my outlook for munis in the second half of the year, I said: “I think you’re going to see very similar to what you saw in the first half [when we had a rally], and I think it’s going to be driven by supply and demand. Supply has certainly been down, new issues have been down, and demand is certainly still very high.”

    This demand is market-wide, but as I have been saying since we founded Hennion & Walsh in 1990, when it comes to munis, I think the best buying opportunities are in “quality” or investment-grade bonds. Unfortunately, some individual investors have started seeking yield as “yield spreads and yields have gotten closer between the high grades and the low grades and the non-rated stuff.” I fundamentally believe investors shouldn’t speculate by “reaching for yield.”

    Puerto Rico, this U.S. territory has been the focus of municipal investors recently and several publicly-owned investment firms might be tempted to speculate in Puerto utility and infrastructure companies, which are struggling to pay off their debts. (Randall W. Forsyth of Barron’s provides a good recap of Puerto Rico’s debt woes). When asked about the impact of Puerto Rico on the muni market, I said: “Puerto Rico is definitely a fluid situation and it is affecting or has the potential to affect the municipal market. I think you have to wait and see what the next move is—what law they’re changing, what they’re doing—but it will still come down to supply and demand.”

    Finally, Gregg and I discussed the rise of muni bond ETFs and where these products might be appealing in investor portfolios. My response reflects the experience I have gained over decades in this business, namely that portfolios should be designed consistent with each individual’s specific growth or income objectives.  While they may make sense in certain growth oriented portfolios that may not be the most appropriate fit for income oriented portfolios “I think it depends on what the individual looks for. The advantage—in my view—for an individual investor to own single issue bonds is that they have a maturity date, a constant coupon, a constant yield, and you know what you’re going to get. At the end of the day, if you’ve bought quality, you get your money back.”

    To watch the full interview with, click here.

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