Greg Davis: Paul, it’s great to have you here today to talk to our clients about what’s been happening in the municipal bond market. You know, we’ve seen a pretty significant amount of concern around liquidity conditions in the marketplace. Love to get your perspective on what you guys are seeing as the head of the municipal bond group.
Paul Malloy: Sure. So what we’re seeing is a pretty rapid price adjustment just as we’ve seen in many other markets. And part of that in the municipal market is due to the very rich levels we went into this at. And on the other side is investors needing cash for various reasons such as rebalancing into equity portfolios. And you’ve got some other shorter-term players in the municipal markets that are demanding liquidity. So what that has done is put some pressure on yields to move upward as investors are demanding liquidity into the product, but ultimately this rapid price adjustment is a good thing.
Greg: And when you think about for long-term investors, higher yields should be a good thing for those investors, right Paul?
Paul: Absolutely. So, to get the true benefit of the municipal asset class, you need to be a long-term owner. It’s all about generating tax-free income, and the only way you get to generate that tax-free income over time is by holding it over time and looking through any bits of price volatility. So you’ve got a really unique opportunity now to lock in some pretty high yields tax-free income for the long run.
Greg: What’s your take on the Fed’s new credit and liquidity facilities, what impact are you guys seeing in terms of the market…how are the markets responding to that?
Paul: Well, we applaud the Fed’s actions to keep money flowing through the system. You know the money market liquidity facility, it was great to have it expanded to cover municipals so that it was treated just like every other money market fund. It was fully inclusive. The other credit facilities that were announced are providing ancillary benefits that as those markets have firmed up, municipal markets are looking very attractive compared to a lot of other fixed income asset classes. So, you’re getting a lot of cross-over buyers interested in the municipal space.
Greg: So, Paul, given the current market environment, what advice would you give to clients thinking about or investing in munis at this point in time?
Paul: Yeah, I would say, think about why you get into munis to begin with. It’s got really low historical default rates and you get tax-free income. So, right now, with yields where they are, you have the ability to lock in some very nice yields to get that tax-free income. You can invest on a diversified basis to remove even the smallest bit of default risk and hold it for the long term.