Beleaguered municipal bonds received a vote of confidence from financial service executives at SIFMA’s Private Client Conference this morning.
“We are not in the Meredith Whitney camp,” declared Richard Boyd, managing director of Federated International Management, referring to the dire scenario for municipal bonds painted by the analyst late last year. “Munis will work their way through their problems. The yields and tax benefits will continue to be there, and we look at it as a buying opportunity. There may be a few defaults, but the world is not coming to an end.”
Ryan Hart, vice president of product management for PIMCO, agreed. “Wholesale defaults are unlikely to happen, and the default burden looks manageable,” Hart said. “If you do your homework, we do think [municipal bonds] are an opportunity.”
One consequence of the attention being paid to municipal bonds has been an increase in research activity, said Christopher Wolfe, chief investment officer of private banking and investment group at Merrill Lynch. “In the mental accounting by clients, municipal bonds are considered an anchor to windward,” Wolfe said. “Clients are benefitting from more education about bonds, and that’s why they will take less yield for less risk.”
Boyd, Hart, Wolfe and Robert Capone, executive vice president of strategic business development for the Bank of New York Mellon Corporation all spoke at a panel titled “Generating Income In A Zero Rate Environment: Product Innovations and the Emerging Needs of Individual Investors.”
The panelists also agreed that emerging market debt in local currency has become an attractive fixed income option for clients seeking yield. In fact, using emerging market debt as part of a portfolio has become “more strategic than tactical,” Hart said.“The middle class in emerging markets is growing exponentially,” Capone said. “We think that will continue, along with growth in debt.”