 |
||||||||
 |
||||||||
|
||||||||
|
Florida municipal bonds on upswing
© St. Petersburg Times, published October 8, 2000 Last year's bond market trauma may not be forgotten, but three straight quarters of positive returns are easing the pain. The third quarter brought more good news in what's turning out to be an upbeat year for Florida municipal bond funds and the investors who own them. The most important factor in last quarter's showing was a small dip in interest rates. Yields on the bellwether 10-year Treasury bond dropped from 6.01 percent to 5.8 percent, with similar declines in the tax-exempt market. Because bond prices and yields move in opposite directions, bond funds enjoyed modest gains in their net asset values. The biggest winners were long-term funds, which react the most to interest rate shifts. On average, long-term Florida funds returned 2.32 percent for the quarter, while long-term insured funds gained 1.96 percent. Intermediate-term funds returned 1.8 percent and short-term funds 1.33 percent. But as usual, there was a fairly wide gap between the best and the worst performers. One key to a good showing was avoiding credit problems. If a bond rating agency downgrades an issue, the market value of the bonds drops. "I like the Pete Rose style of hitting: Just keep knocking out those singles and try to avoid the strikeouts," said Robert Pariseau in San Antonio, Texas, manager of the USAA Florida Tax-Free Income Fund, one of the quarter's better performers. He said concentrating on bonds with 20 years or more to maturity also helped performance because those bonds benefitted the most from falling interest rates. Some slightly lower-rated bonds gave a boost to the quarter's top-performer, the Alliance Municipal Income Fund II-Florida Portfolio. Co-manager David Dowden said the trick was finding A- and BBB-rated bonds that investors were ignoring last year when the bond market was suffering. After conditions improved, those bonds became more popular, moving up closer in price to AAA bonds. "Last year may not have seemed to be a great year for investing in bonds as interest rates were rising, but we looked at it as an opportunity," he said. Dowden said the fund also has done well with community development district bonds in southwest Florida. The bonds are used to finance infrastructure improvements in a new development. As homes in the development are sold, the bonds become less risky, increasing their value. Nobody expects the Federal Reserve Board to take any further action on interest rates before the presidential election, but another move could come after that. "The real question is what direction the next move will be," Pariseau said. "You could argue that the economy is clearly slowing down. I think they would be careful before they would raise rates again." On the other hand, there are still concerns about higher oil prices and the tight labor market, which could fire up inflation. If prices and wages go up, the Federal Reserve will be more inclined to raise short-term rates to try to cool down the economy.
 © 2006 • All Rights Reserved • Tampa Bay Times
490 First Avenue South • St. Petersburg, FL 33701 • 727-893-8111 
|
From the Times Business report
From the AP
|
