Muni musings

It’s been more than two years since analyst Meredith Whitney sounded the alarm bells with her bold December 2010 appearance on “60 Minutes” calling for an imminent muni bond market meltdown. In the ensuing 27 months my proxy for the muni bond market, S&P National AMT-Free Municipal Bond (MUB) – a $3.6 billion exchange-traded fund, has appreciated at an annualized rate of 7.9%. Recently, though, muni prices have softened. MUB fell below its long-term 200 day average in early March and I’m hearing rumblings on Wall Street that the muni bond market’s bull run is coming to a close.

MUB topped out right after Thanksgiving and fell sharply heading into year-end as concerns mounted that Congress would eliminate the tax exempt status for muni bonds as part of the Fiscal Cliff negotiations. That didn’t happen, but munis have struggled to regain their footing since then. A recent spate of credit downgrades from the likes of  the State of Illinois and Stockton, California’s bankruptcy have undermined investor confidence. March also happens to be an historically lousy month for munis.

From a technical point of view, MUB is currently consolidating. Price is above both its intermediate-term 50 day average and longer-term 200 day average and has formed a triangle pattern. Whichever direction, up or down, MUB’s price breaks out from this triangle pattern has a high probability of pointing the way of the muni bond market’s next big move. My own strategy for measuring risk focuses on intermediate trends and turned bullish on April 5, so odds favor an upside move.

For now, my US Municipal Bond reading: Bull market.

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Please note that my readings will change without notice,  so please don’t buy or sell solely based on anything you read in this blog.