According to Don Schreibner Jr., they have. See his Jan. 3, 2010 InvestmentNews article, “It’s time to sell municipal bonds.” Mr. Schreibner is president and chief executive of WBI Investments, a money management firm.
Generally speaking, municipal bonds have traditionally been considered to be on the conservative end of the risk spectrum. But Mr. Schreibner says that states and municipal governments are now facing unprecedented and persistent fiscal problems which he expects will lead to unprecedented defaults by municipal bond issuers. He points to the following:
- Unemployment will peak well above 10% in 2010 according to many economist. This will result in decreased income tax receipts and increased demand for social services.
- Spending will decrease causing sales tax receipts to decrease.
- Rising delinquencies and defaults on residential and commercial properties will lead to decreased property tax receipts.
- The current recession will be more severe than the last one, causing state fiscal problems to be deeper and more persistent than in previous recessions, according to the Center on Budget and Policy Priorities, a non-partisan group focusing on the needs of low-income families.
- At least 48 states have budget concerns, with shortfalls estimated at $168 billion for the 2010 fiscal year.
- At least 36 states already anticipate significant deficits for 2011, with total budget shortfalls estimated at an additional $180 billion.
Historically, the municipal bond market has completely ignored the risk of default, according to Mr. Schreibner, and an average 1.5% risk of default has lulled many investors into a state of complacency. Mr. Schreibner finds this eerily similar to the historic-low 3% default rate on residential mortgages just before the current financial crisis that took down some of the largest financial institutions in the world.
Municipal bond prices fell by approximately 20% in 2008. Mr. Schreibner says he is baffled that pricing recovered last year and that municipal bonds now trade at a premium.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions, and have aided clients who have been the victims of financial adviser abuse and scams. Page Perry’s attorneys are actively involved in counseling institutional and individual investors regarding their investment problems. For further information, please contact us.