Bloodbath in Muni Bond Funds; Reasons for the Muni Selloff; Will it Continue?

By: Mike Shedlock | Tue, Dec 14, 2010
Print Email

Inquiring minds are watching a huge selloff in Municipal Bond Funds. Here are a few charts.

NPI Nuveen Premium Income Municipal Fund


NPP Nuveen Perform Plus Municipal Fund


NPP Nuveen Municipal Advantage Fund


NPP Nuveen Municipal Market Opportunity Fund


NQI Nuveen Insured Quality Opportunity Fund


NQS Nuveen Select Quality Municipal Fund


NPF Nuveen Premier Municipal Income Fund


NZX Nuveen Georgia Dividend Advantage Municipal Fund


NIO Nuveen Insured Municipal Opportunity Fund


NPI Nuveen Premium Insured Municipal Fund


A tip of the hat to reader "Captain America" for all the symbols.

My first thought is good grief, how many freakin' muni funds does one need? Nuveen offers at least 10 different ways to invest in munis. That is just Nuveen. Is there a bubble in the number of muni funds?

Reasons for the Muni Selloff

  1. Unwinding of the "sure-thing" Quantitative Easing trade
  2. Selloff in bonds in general because of budget and inflation concerns
  3. End of the Build America Bond program (BABs)
  4. Increasing default risk
  5. Of the above reasons, 3 and 4 are the most important on intermediate and ongoing basis.

BABs was excluded from Obama's compromise tax proposal. Hopefully it stays that way. I discussed why in Time to Kill Build America Bonds (BABs)

The short version is "Taxpayers are already on the hook for hundreds of billions of dollars of Fannie Mae and Freddie Mac debt. We should not extend the insanity to government guarantees of municipal bonds"

However, now that the government guarantee is gone, yields are poised to rise, especially with increased default risk rising.

Here are several examples of rising default risk:

All it takes is one brave municipality to lead the way and others will follow. When that happens, the baby will likely be thrown out with then bathwater. There is no reason to like Munis here.

By the way, bankruptcies are a very deflationary event.



Mike Shedlock

Author: Mike Shedlock

Mike Shedlock / Mish
Mish Talk

Mike Shedlock

Michael "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit to learn more about wealth management for investors seeking strong performance with low volatility.

Copyright © 2005-2017 Mike Shedlock

All Images, XHTML Renderings, and Source Code Copyright ©