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Munis cheapen slightly after Friday's larger losses

BY SourceMedia | MUNICIPAL | 04:13 PM EDT By Christina Baker

Munis were slightly weaker in spots Monday, with muni yields seeing smaller cuts than Friday, when inflation concerns led to larger losses in the bond markets to end the week. U.S. Treasuries were little changed and equities were mixed.

Muni yields were cut up to three basis points, with the biggest cuts out long. UST yields richened by up to two basis points at certain maturities.

This will be another week of heavy issuance, with an $11.8 billion new-issue calendar. Daryl Clements, a municipal portfolio manager at AllianceBernstein (AB), said the heavy calendar means the muni market may see more volatility.

"This could be a good time to put cash to work, as issuance the week of Memorial Day will likely be much lighter," Clements wrote. "Investors need to be patient given the recent bouts of volatility and take advantage of the high yields being offered by the market."

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In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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