Municipal Bond Forum
Panic doesn’t pay
Q
With the selloff of municipals, particularly those issued by Puerto Rico, there was been a reduction in the market value of individual bond portfolios. I think this is panic selling by bondholders fixated on the events in Detroit and Stockton. I don’t think these people belong in municipals in the first place. While no one wants the value of their portfolio to decline, this should not be a paramount consideration for bondholders, who get it all back upon redemption.
A
James A. Klotz responds:
We couldn’t agree more. This is the very definition of panic selling, not just from individual investors but also from institutions.
Unfortunately, the lower prices caused by these mass liquidations has a snowball effect which feeds upon itself and begets more selling, causing severe price deterioration.
Although we anticipate Puerto Rico bond prices will remain volatile over the near future, holders of individual bonds should continue to receive their timely interest and principal payments.
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