This massive borrowing pawned off on treasury and municipal investors is the result of the Keynesian theory at its worst.
Now on Saperstein's mind, and the minds of millions of other fixed-income investors, is the multitrillion-dollar question of whether the U.S. Treasury and municipal bond markets are on the verge of blowing up, too, or merely suffering a bout of indigestion.
Unlike the municipal bond market, the Treasury market is a homogenous credit market, highly liquid and dominated by institutional investors, both domestic and international.
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Treasury, corporate, municipal, high-yield and foreign bonds (and bond funds) can all play a role in your portfolio.
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The result is inflation in the treasury markets and default in the municipal markets.
In order of popularity, respondents said they owned high-quality corporate, high-yield, international (including emerging market), Treasury (including TIPS) and municipal bonds and bond funds.
European contagion and municipal credit concerns have sparked a flight to quality in the treasury market pushing the 5-30-year curve out to 313bps.
Their database is composed of Treasury issues, federal agency issues, mortgages, corporate bonds, municipal bonds, money market funds and asset-backed securities.
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The sad thing is this: Today investors can earn 11% on Treasury bonds with absolutely no credit risk and 9% or more tax-free on municipal bonds.
The court documents also charge that Hertz and his co-conspirators misrepresented to municipal issuers or their bond counsel that the bidding process was in compliance with U.S. Treasury regulations.
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Already, there is grumbling among local politicians after U.S. Treasury Secretary John Snow told the Senate Banking Committee on Thursday that he found federal guarantees for municipal debt in the affected region "highly undesirable" and something he would oppose.
Congress, the Treasury Department, the National Association of Securities Dealers, the Securities and Exchange Commission and the Municipal Securities Rulemaking Board are weighing in, troubled by the fact that broker-sold plans may charge a load and often have annual expenses of more than 2%.
Once a municipal bond is refinanced, (prerefunded) the issuer uses the proceeds of the new issue and purchases US Treasury securities (collateral) that are used to pay the interest and principal on the original, more expensive debt until maturity or the call date, whichever the escrow agreement states.
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