Municipals primary may top $400 billion for 2009 in supply-demand market, says portfolio manager

By Sheri Kasprzak

New York, April 1 - The municipals market is perhaps more attractive to investors this year than it was last year, said Joseph Dean, senior portfolio manager for tax-exempt securities with Western Asset Management in a recent Legg Mason Inc. conference call.

"The market is really, in the long run, in much better shape and better-prepared for the future, thanks to the almost utter demise of the single-strategy hedge fund," said Dean during the call.

For the coming year, Dean predicts the market will be more supply-and-demand oriented, especially for cash buyers. The supply, Dean said, may top $400 billion, and municipals may be cheap enough to appeal to retail investors so that this supply is gobbled up quickly.

Issuers, Dean said, are now preparing their offerings after holding off at the end of 2008.

"State and local governments were not wanting to come to market until they knew what they were going to get out of TARP [Troubled Assets Relief Program] or their budgets," he noted. "Now they're properly priced. There's a good opportunity in higher-grade areas."

What should investors be looking for in particular?

"The long end of the curve is where you want to be," Dean asserted. "There's an incredibly steep yield curve."

In terms of what investors need to do to feel good about municipals, Dean suggests research. With the demise of the major bond insurers, Dean said his firm relies a great deal upon research.

"More than Moody's or Fitch, we rely on research," he noted.

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