The Banking and Strategy Initiative

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Market maker JPM bids up Munis, buys into 7-9 yr Curve | Fixed Income Insight

JP Morgan’s Muni team came out with a note admitting the 5 yr munis are optimally priced at a good peak and thus selling into the point would require them to moving to 7-9 yrs maturities in anticipation. JP Morgan has also been the biggest originators in Munis high yield markets as the short term US yields run at all time lows and give this High yield risky market a fillip even as volumes reduce on account of default fears from many munis driving many bond issues to expiry than renewal in 2011, 2012 and 2013.

San Francisco Municipal Railway (Muni) #1016 S...

San Francisco Municipal Railway (Muni) #1016 St. Louis Car Company streetcar (PCC streetcar) 1951 01 (Photo credit: Jack_Snell)

Barron’s gets a peek into the note that reiterates that investors place a premium on liquidity and defense at such FI market peaks with yields running near 0 till 2014 according to the Fed mandate. FOMC in progress today is unlikely to raise short term rates in a hurry. Higher Liquidity and Higher Total returns provide defence against the eventually higher yields and Muni issuers get a fillip from the trading of the new range renewing business activity in the muni market.

The two Southern candidates from the GOP, Gingrich and Santorum are presenting at the Gulf Coast Energy Summit ahead of Ala. and Miss. votes tomorrow.

Such muni market making would fall in the cracks in the new Volcker definitions of Prop. trading as many munis rely on underwriters like JP morgan buying most of the issue and then selling them at higher prices to secondary investors, that may hypothetically may not be easy to find.

The Obama 2012 budget also reintroduces Build America Bonds

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