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Muni Bonds: Will New Worries Spread?

The decision yesterday by Harrisburg, Pa., city officials to file for bankruptcy raises a key question for investors: Is there more danger ahead for the already troubled municipal bond market?

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Harrisburg city council members approved late Tuesday a resolution which allows the city to file for bankruptcy protection, a move industry experts say could lead to significant losses for holders of the city’s debt and likely damage the state’s credit rating. Typically in a bankruptcy, bondholders and other creditors fight for any assets the city can use to cover its debt, says Chris Ryon, co-portfolio manager of Thornburg Municipal Bond Funds. For those investors who own bonds that are insured, the insurance company will make interest payments and principal payments when they’re due. Investors without insurance will likely see losses, say Ryon: The recovery rate for municipal bonds is about 65%.

The $3 trillion municipal bond market, of course, is a crucial part of many investors’ portfolios — especially retirees, who rely on muni bonds’ partially tax-free returns to boost their income. But as fears of defaults rise, a level of anxiety has crept in, complicating these once-stalwart investments.

The bankruptcy filing comes as many municipalities continue to struggle financially, thanks to reductions in federal aid and a stagnant economy. While defaults remain rare — so far this year 79 issuers with $1.7 billion in outstanding debt have defaulted, compared to 99 issuers and $2.2 billion at the same time last year —  researcher Municipal Market Advisors reported this week that municipal bond downgrades are on the rise. Ratings agencies are doing more “super downgrades,” in which muni bond issues are downgraded by three notches or more. There were nine such downgrades in September compared to four in August, according  MMA. And  Moody’s ratio of downgrades to upgrades was 12 to 1 in September.

Regardless of the risks, investors seeking decent yields have been pouring into muni bond funds: Flows have been positive for 11 of the past 14 weeks, according to Thomson Reuters’ Lipper Research Services. So far this year, intermediate-maturity municipal bond funds returned 6.3% through September, compared to 4.8% for intermediate-maturity investment grade bonds, according to Lipper.

Indeed, some industry experts say fears of more municipalities defaulting are overblown. Jim Lebenthal, director of public affairs for Lebenthal & Co. in New York says Harrisburg’s deterioration has been coming for years and “is not a vindication” of the panic” prompted last December when financial analyst Meredith Whitney predicted a coming wave of muni defaults. And the bankruptcy might yet be avoided. In September, officials in Jefferson County, Ala., came to a deal on $3.13 billion of debt — avoiding what would have been the largest municipal bankruptcy in U.S. history.

In some cases, bankruptcy filings are dismissed — and legal experts are already saying Pennsylvania may challenge this filing in court, citing a law that requires state approval before a city can file under Chapter 9. Jim Spiotto, a partner at Chapman and Cutler in Chicago and an expert on municipal bankruptcy, points out that there have been 629 municipal Chapter 9 filings since 1937;  of that, 161 — or roughly 1 in 4 — have been dismissed in court.

On top of that, the debt in question makes up only a small portion of the larger $3 trillion municipal bond market – meaning most investors in muni bond funds will be unaffected, says Richard Ciccarone, managing director and chief research officer for McDonnell Investment Management. “For the general market I don’t think this is going to be a very big deal at all,” says Ryon.

This story was written by Jonnelle Marte and Elizabeth O’Brien.


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      background:#323232 url( fixed;


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      The Author.
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      Welcome To My Blog!
      I am a 20 something girl, currently enrolling into Graduate School. I blog(obviously), take photographs, draw, travel, and continuisly improve my knowledge of different languages.
      This blog serves more as a logbook filled with my toughts, my photographs, my trips and travels, my random sketches, my ideas and tips for you, some quotes as well as some writing related talksamong other things.
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      A Very Nest December to You.
      My first time drawing a nest and I think it is not too bad (i’m actually more liking the tree ). Maybe next time it will turn out much better than this, but for now it will have to do. I know Daniel was joking when he requested this drawing, but I had nothing better to do anyway, plus you always need to know how to draw a nest, don’t you? SO this is my first attempt at it. I used three mediums for this: gouache for the ‘snow’, a brush-pen for the tree and also crayons for the nest, background and falling snow. Because my desk lamp is very yellow, the image didn’t really look well, so I applied a filter in CS5. And that’s it! Your drawing of the day
      Wishing you all a Very Nest December!
      PS: Want to request a drawing and see how bad well I perform? Get typing in the comments below В or tweet me at @kalieta
      Sketch $ Co.
      drawing, nest, request, snow, tree, winter
      Seems like I have taken too long before making a proper celebration of December! To make amends, I decided to post one Christmas related drawing/art made by yours truly, here on the blog until the 25th. If you’d like to request a drawing, now is the time! Just drop me a request in the comments below or on my twitter or facebook page and I will get to the business!
      While we are talking about December events, check these events hosted by my blogger mates
      Helene is hosting a new installment of her Advent Calendar filled with digital goodies for you to download!
      Heather is doing a 24 Days of Tea series, where she is reviewing the teas that were part of the David’s Tea Advent Calendar. For those of you who love tea, her guides will help you decide on what tea to get for the season, so check her out.
      Well I hope you’re enjoying every day of this fabulous month!
      Sketch $ Co.
      Christmas, drawing, recommendations
      The Dutchess.
      Yesterday as I was watching (for the tenth time?) The Dutchess, I felt the urge to sketch her. Keira Knightley is such a great actress, that now I always watch her movies just for theВ  pleasure of seeing her act rather than for the plot itself.В  I have also finished my SATC marathon (that includes the movies) and might go back and sketch each girl in their best outfits. I think that would be fun I just need to find a way to color them, since I am not too good with colors. These sketches are not done yet – I will be coming back to them in the future. When I do,I will post the update here for you to see.
      Also, I finished 3 out of 5 of my Currently Reading list for the month of November. I started Catherine The Great and decided to allocate it more time since it is a nonfiction and I like to ponder on details (such as dates, places). I will be reading it in parallel with another book that I started: Catch-22. I couldn’t finish Winter’s Tale as i found the narrative too long and quite boring. I will give it a rest and see later if I am more up for the reading or not. Which means that after Catch-22 I’ll be posting a new list of books I plan on reading for the month of December!
      What movie have you recently seen?
      What have you been up to lately?
      Sketch $ Co.
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      Chocolate Chip Cookie in a Bowl.
      It is a rainy day today in Douala and as I was reading my current book (This is how you lose her) and having my sixth cup of hot tea, I felt like I needed to have something sweet to go with it. And since I have a bit of a cold, I did not feel like cooking. Luckily for me, I was able to get the cooking of my dessert done in less than five minutes. If everything was as easy to do as this chocolate chip cookie recipe, I am sure my life would be much simpler, wouldn’t you agree?
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      How To Have a Clean Face.
      Disclaimer: I am not a professional facial-care specialist. I am just sharing tips that I have learned through trial and error and which happen to work for me. Also, this is not a sponsored post.В 
      I have been meaning to write this post for a while, after getting compliments on my complexion. Even if I have mostly to thank my parents for good genes, I too have a few acne problems from time to time and I am very careful with the way I take care of my face. I never use products that are too harsh or even expose myself to too much radiations. But mostly, I enjoy having a very clean face, that when you touch is as soft as a baby’s. I hate when the T areas are oily or full of sebum. It really grosses me out. This is why, after watching some facial care specialists, and reading about facial care, I put together something similar to a spa treatment at home, that only takes me about 10 minutes.
      What you will need (as shown above): Filtered Water (although if your local faucet water is clean of chlorine that’s fine too) – Hair band (to keep your hair off your face) – Face Wash and A Face Cream (Could be a simple face wash or an acne solution) -В  Clean Cotton Cloth -В  Microwave (not on the photo).
      I like to switch between my face wash products. I regularly use the Acne Solution by Burt’s Bees as well as its cream, to prevent and get rid of acne, and also use from time to time my NARS face wash and cream (which are not acne treatments, just simple wash and a hydrating cream). You can just pick whichever product you like to use on the daily basis. If you are looking for a good acne treatment, I really recommend the Burt’s Bees products (for small budgets).
      Also, I do this twice or maximum three times a week. In between, I just do a simple face wash (without the cloth and microwave) with my NARS face wash.
      Read more →
      Tips and Tricks
      beauty, Burts Bees, clean face, cream, face wash, facial products, how to, NARS, tips
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      © 2012 KALIETA.NET
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    • Voters should be held accountable for the performance of their elected officials. When debt is mismanaged, the electorate should pick up the tab not the bond holders.

    • I bet George W. Bush caused this problem.

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