Municipal bonds have had a red hot year in 2014, but don’t expect that to extend into 2015, particularly for Puerto Rican bonds, Alexandra Lebenthal, CEO of Lebenthal Holdings told CNBC.
Municipal bonds returned 9.14% in 2014, compared to its 8 year average returns of 5.8%. They have outperformed Treasurys, agency debentures, Agency MBS by huge margins. Municipal bonds are still trading at a large discount to treasurys and have markedly higher yields. However, municipal bonds tend to be vulnerable to the season, and the first part of the year is notoriously light for the investment class.
Alexandra Lebenthal points out the Puerto Rican bonds are particularly vulnerable. She told CNBC, “Run fast away from Puerto Rico. Puerto Rico Electric Power Authority has been the big issue people have been focusing on for a long, long time.” The issue is whether or not the Electric Power Authority will be able to make its payment in January. Cheap energy prices should help, but there are huge worries. However, Lebenthal feels it is unlikely that Puerto Rico will destablize the entire municipal bond market. She is bullish on bonds from Virginia and Maryland, but it is better if you actually live in those states, because she added, “Remember, you are going to have to pay state taxes if you own bonds in a state in which you don’t live.”