Talking Numbers

Forget Detroit: 3 reasons why munis are a buy

Talking Numbers

Alexandra Lebenthal, President and CEO of Lebenthal & Co., believes municipal bonds may now be a buy.

Three major issuers have big municipal bond offerings this week, including the Puerto Rico Electric Authority, Chicago’s O’Hare International Airport, and the Indiana Finance Authority.

It has been a tough ride for tax-exempt debt in the wake of Detroit’s bankruptcy filings. However, CNBC contributor Alexandra Lebenthal, President and CEO of Lebenthal & Co., believes municipal bonds may now be a buy.

Still, Detroit’s bankruptcy looms large in the minds of bond investors. Addressing that concern, Lebenthal says not all municipal bond investments should be punished because of what happened in Detroit.

“If you look at outflows from municipal bond funds versus inflows to corporate bond funds, it certainly suggests that there’s been a very strong – and I do believe – overreaction to what’s happened in Detroit,” says Lebenthal.

(Read: Christie's hired to appraise Detroit's art collection)

And, Lebenthal believes that the US courts will ultimately uphold the rights of Detroit’s general obligations bondholders should they be challenged in the judiciary. Unlike revenue bonds, which rely on revenues generated from specific projects, general obligation bonds get paid through a municipality’s taxes.

“Go back to New York City in 1975,” says Lebenthal. “Go back to Central Falls, RI, where the State of Rhode Island actually passed a law that said bondholders come first. Precedence suggests– and do bear in mind that judges look to case law – that the sanctity of general obligations bonds would be upheld.”

(Read: Puerto Rico to test shaky bond market with new offering)

With that in mind, Lebenthal appears on Talking Numbers to say that there are three specific reasons why investors should get into the municipal bond markets.

Watch the video above to hear why Lebenthal believes investors should take advantage of higher municipal bonds yields.

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