Bond fund manager Bill Gross on Tuesday said he had bought $1.5 billion of municipal bonds on Friday at what he called "very attractive" prices that have risen "substantially" since then.
The $2.6 trillion municipal bond market has become a bargain-hunter's delight, because hedge funds and other players that use leverage were forced to sell billions of dollars of bonds last week. February recorded the municipal bond market's worst-ever performance, according to Merrill Lynch indices.
Gross, who manages the $120 billion Pimco Total Return Fund, responded to Reuters in an email. He declined to provide the average yields he paid.
"We bought $1.5 billion on Friday at very attractive prices that have since improved substantially."
Hedge funds and so-called tender option bond programs, which make money by buying long-term municipal debt and financing it with short-term paper, have faced a double-whammy of issues.
Short-term borrowing costs have spiked as investors unloaded paper backed by troubled bond insurers, swamping dealers. And the value of long-term municipal bonds plunged as investors fled debt that was seen as tainted because it was backed by an insurer no longer deemed credit-worthy because of its expansion into the subprime mortgage sector.
Retail investors, who often are viewed as slow-footed, have also leaped into the market.
For example, California on Monday sold 70 percent of the $1.75 billion of bonds it is selling to individuals, an extraordinarily high amount.
Issuers often are happy if they place just 15 to 20 percent of their bonds with individuals. A spokesman for California's treasurer said this was unprecedented demand, and the state ended the retail presale period early because it wanted to preserve some of its new bonds for institutions.