As has happened in the past two periods of strained liquidity (2008 and 2010), these investors captured great values which, in my view, were in part represented by some of the deep discounts shown by the intraday marks on the muni ETFs. I view this “intervention” strategy as having been born out of the introduction of Build America Bonds, which I believe brought many more portfolio eyes to focus on the municipal bond market and on its unique qualities as a destination for valuable tactical trades during times of stress.
Bernanke’s testimony notwithstanding, I am hoping for a period of calm and consolidation so the muni bond fund community can re-establish a credible reinvestment strategy.
James Colby is a portfolio manager and senior municipal strategist at Market Vectors ETFs.