Fire Sale for Closed-End Muni Funds Means Only Brave Should Buy
- Average discounts on muni closed-end funds are 9 percent
- Leverage fees are up and longer duration means more volatility
Western Asset's Amodeo Says Muni Fundamentals Best in Over a Decade
This article is for subscribers only.
Shares of municipal-bond funds are trading at their deepest discounts since 2013 as the rising cost of leverage, dividend cuts and the market’s worst first quarter since 1996 have pushed share prices down.
The discount, or the difference between a closed-end fund’s share price and the underlying value of its assets, is 9.1 percent, according to Ryan Paylor, a portfolio manager at Thomas J. Herzfeld Advisors, Inc. in Miami who invests in the sector. Those gaps reached a more than four-year high of 9.67 percent in March, dangling a potential arbitrage opportunity.