Last month we noted the confluence of factors that led to a sharp sell-off in the municipal bond market. The question is going forward what should muni bond investors keep an eye on?  There certainly is still fear out there as investors continue to pull money from muni bond funds.  Any time you have the volatility, in what is perceived to be a safe asset class, you get some this kind of reaction.  Expectations are for now that the Build America Bond program will be extended, but that is not stopping issuers from filling the December issuance calendar.  The dependence of California and New York on the program makes its extension more likely.  One bright spot is that the states are reporting continued increases in tax revenue, although this growth remains below trend.  Sharp market moves, to the upside and downside, often require a period of consolidation.  In today’s screencast we revisit the muni bond market going into the new year.

Items mentioned in the above screencast:

Munis had their worst month since the financial crisis.  (FT)

Muni market volatility has been driven in part by concerns over the prospect for the Build America Bond program.  (Bond Buyer)

Build America Bonds as a subsidy for California.  (Bruce Krasting)

On the prospects for muni bonds in 2011. (MarketBeat)

State tax receipts (and spending) are rebounding.  (Economix, WSJ)

Daily chart of the iShares S&P National AMT-Free Muni Bond ETF (MUB).  (Finviz)