Main Lines

Sewers may stink. But not when it comes to investing.

There are plenty of municipal bonds out there. States, cities, and school districts all borrow against tax revenues to fund current projects, whether it’s improving a road or building a new school. By borrowing money to build infrastructure, improving economic growth can pay for the bonds’ interest and principal.

Most municipal borrowings bear little credit risk. After all, when the bonds are general obligations of a city or town, they are secured by the general taxing authority. Unlike corporations, cities and towns don’t just “go away,” so credit losses are rare.

Some borrowers aren’t as credit-worthy, however. Both California and Puerto Rico are rated triple-B. Their economies have suffered significantly in the latest downturn. For those issuers, revenue bonds have become much more popular. Early in May, California sold $3 billion in revenue bonds, a billion more than planned. The Puerto Rico Electric Power Authority sold $1 billion in April, $400 million more than intended, as demand for the bonds outstripped the supply.

Investors expect that even if tax revenues fall off, people will keep paying their power and water bills. In general, that’s not a bad bet. After all, the services are essential, and the assets are liquid.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-05T19:18:22+00:00 June 1st, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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