While there may be some degree of increased risk premia with stories like Vallejo in the news, virtually all of the dramatic price drop in the muni market this week has been because of the hedge fund unwinds. New York Port Authority 10 bonds are about as likely to default as a 10 year Treasury, but price is down 5.4 % in the last few days. This is hedge fund de-leveraging, and nothing else.
While there may be some degree of increased risk premia with stories like Vallejo in the news, virtually all of the dramatic price drop in the muni market this week has been because of the hedge fund unwinds. New York Port Authority 10 bonds are about as likely to default as a 10 year Treasury, but price is down 5.4 % in the last few days. This is hedge fund de-leveraging, and nothing else.