(Bloomberg News) Individual municipal-bond investors aren't fleeing the market after Standard & Poor's lowered the credit rating of thousands of bonds.
The ratio of buy orders to sell orders, a measure of investor demand, was 2.5 for municipal-bond trades on the BondDesk Group LLC platform yesterday, meaning there were more buyers than sellers, said Chris Shayne, senior market strategist for the group, a bond marketplace that works with dealers, advisers and discount brokers. That ratio showed demand was about normal and up from earlier in the week when demand was "substantially" weaker than normal, said Shayne, who's based in Mill Valley, California.
Investors may not be dumping their bonds in part because they're more focused on the underlying ability of issuers to repay principal and coupons, said Tom Spalding, who oversees about $10 billion in municipal securities in mutual funds and closed-end funds at Nuveen Investments Inc. in Chicago.
"They're taking a longer-term view," Spalding said. "The overwhelming evidence is that municipal credit is still a relative safe haven for investors."
Flows this week have been mixed in the mutual funds Spalding manages with "modest" inflows to short-term municipal-bond funds and similar outflows from long-term funds, he said.
Collateral Damage
"We have not seen the collateral damage in muni land," said Marilyn Cohen, president of Los Angeles-based Envision Capital Management Inc., which manages $328 million in fixed- income assets for individuals. "People were braced for it. They understood it does not mean that the credit metrics have deteriorated immediately."
The Dow Jones Industrial Average fell about 520 points, or 4.6 percent yesterday, to the lowest level since September 2010. Standard & Poor's assigned AA+ ratings, the second-highest investment-grade rating, to about 11,500 municipal securities this week, according to data compiled by Bloomberg. The affected bonds generally are tied to the federal government, which lost its AAA long-term credit rating from S&P on Aug. 5.
"Getting in and out of the municipal market causes its own friction, and I'm not going to do it willy nilly because everyone is running around with their heads cut off," said New York-based Thomas Dalpiaz, who oversees $280 million as senior vice president of Advisors Asset Management Inc. "It's my job to keep my head when everybody is losing theirs."
Wait And See
Individual investors generally don't sell bonds as quickly as they may sell stocks in reaction to bad news, said John Hallacy, head of municipal research at Bank of America Merrill Lynch in New York.