Market Review and Outlook 1st Quarter 2010
The municipal market staged a dramatic recovery in 2009, along with equities and most risk sectors in the capital markets. In fact, the riskier the security, the better was the performance, as top quality municipal bonds outperformed US Treasuries and agencies and lower quality municipal bonds outperformed top quality municipal bonds. While Samson was bullish on municipal bonds in the first half of 2009, our view changed to moderately bearish with concerns about rich valuations during the second half of the year. Several key factors contributed to the strong performance of municipal bonds (e.g., Build America Bond issuance coinciding with diminished tax-free bond issuance, strong retail demand and heavy inflows into mutual funds), but most of them were related to supply and demand pressures rather than a fundamental strengthening of the market.