Hedge Funds' Fire Sales Send Muni-Bond Yields To Historic High Levels
By Michael Aneiro, Tom Lauricella and Liz Rappaport
Months of turmoil in the municipal-bond market, long a placid haven for individual investors, reached a boiling point Friday -- as hedge funds were forced to unwind complicated bets and in the process dump billions of dollars of the securities.
As a result of that surprising forced selling, yields on debt from municipalities and other tax-exempt issuers jumped to their highest levels in history, when compared with safe debt issued by the U.S. government. The average AAA-rated, 30-year municipal bond yielded 5.14% Friday afternoon, compared with 4.42% on a U.S. Treasury 30-year bond.
Hedge funds not only operate in private, they also are involved with securities that can be kept "off balance sheet," thus provide 2 sources of opacity in the market.
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