Tisch Sees Rare Opportunity for Munis as Funds Dump Bonds
Loews Corp. (L) Chief Executive Officer James Tisch said now is the time to buy municipal bonds after mutual fund investors dumped the securities for 25 straight weeks.
“The returns are truly, truly extraordinary in the municipal bond market,” Tisch said in an interview today with Stephanie Ruhle and Erik Schatzker on Bloomberg Television’s “Market Makers” program. “This is one of those rare opportunities where munis are so attractive.”
Tax-exempt revenue bonds rated AA and maturing in 30 years yield about 4.6 percent, according to data compiled by Bloomberg. The interest rate is up from as little as 3.04 percent in January. The $3.7 trillion municipal market has lost about 2.4 percent this year, according to Standard & Poor’s data.
Loews’s insurance subsidiary CNA Financial Corp. (CNA) said in July that it was buying state and local-government debt for its $46 billion investment portfolio. The strategy was a reversal for Tisch, who said earlier this year that interest rates were so low that bonds were competing in an “ugly contest.”
Outflows from mutual funds helped change that, he said today. Investors turned to stocks on speculation that the Federal Reserve will curb its bond-buying program, leading to higher interest rates. Withdrawals increased after Detroit in July filed the biggest U.S. municipal bankruptcy.
Individuals have pulled almost $52 billion from muni mutual funds this year, Lipper US Fund Flows data show. Over the same period in 2012, investors poured about $47 billion into the asset class, Lipper data show, helping push municipal yields to the lowest since the 1960s in December.
“Mutual funds had withdrawals, so they became forced sellers,” Tisch said. “Munis had to get to truly extraordinary yields in order to attract that capital.”
Loews has subsidiaries in the commercial-insurance, hotel and energy industries. The New York-based company has advanced 18 percent this year, compared with the S&P 500 Index’s 26 percent rally.