Investor Wilbur Ross has purchased $1bn of US municipal bonds, a sign that some large investors are snapping up these investments after a recent selloff, reports the Wall Street Journal.
Ross wouldn’t comment on who sold the bonds to him but people familiar with the matter said he purchased the portfolio of bonds from hedge fund Duration Capital Management, which operates two hedge funds and has been selling bonds to try to stay afloat, according to the Journal. A Duration representative wouldn’t comment other than to say that the hedge funds are still in business.
The news follows an earlier FT report that Ross would invest up to $1bn in Assured Guaranty to enable the bond insurer to take advantage of troubles plaguing bigger rivals such as MBIA and Ambac. In a move that highlights dramatic changes under way in the bond insurance sector, Ross planned initially buy $250m of Assured’s shares, about 12 per cent, with a commitment to invest an extra $750m if the company needs it, said the FT.
The new buying by Ross, and by others such as bond titan Pimco, is a bet that prices are cheap, says the Journal. But “it is also a wager that a Democratic president could potentially raise taxes, making tax-free munis especially attractive”.
Ross said that last Friday his firm bought up long-term muni bonds with an average annual interest rate of “well over” 5.5 per cent, a yield that tops that of comparable Treasury securities, which aren’t tax-free on a federal level, reports the Journal, noting that in “normal times, muni bonds yield less than Treasurys because of their tax-free status”.
The purchase last Friday by Pimco of $1.5bn worth of munis, also has seen sharp gains, added the Journal. “These are values that probably won’t come around for another generation, but they’re here at the moment,” Bill Gross, who runs the $123bn Pimco Total Return Fund, told Fox television on Tuesday. “Yes, they’re risky because the prices are moving at the moment down. But they’re not un-credit-worthy.”
The buying spurt has driven the muni market up as much as 10 per cent in the past few days.
