US: Credit Market

No Signs of a Muni Bond Crisis: Lebenthal


The concerns about municipal finances are overdone, Alexandra Lebenthal, CEO and president of Lebenthal & Company, told CNBC’s “Closing Bell” on Friday.

Defaults year-to-date are up versus last year, Lebenthal said, but the total amount is roughly $3 billion this year versus around $2 billion last year. “Still relatively small and not the enormous number that has been bandied about,” she said.

Noted financial analyst Meredith Whitney told CNBC last month that the cash-strapped local governments will soon face an "inflection point" that will force them to decide whether to provide services or pay their debts. Back in 2010, Whitney predicted a wave of municipal bankruptcies which has yet to hit. (Read More:Municipal Finances Reaching an 'Inflection Point': Whitney.)

Lebenthal noted that about 57 percent of localities are better able to meet their needs this year than last. Some states are also sitting down with unions to work out new ways of looking at public pensions which should also help improve municipal finances, she added.

(Read More:U.S. Municipalities That Went Bankrupt.)

Issuance and demand has also been strong in the muni market despite the worries about public finances. “After tax yields and even before tax yields on munis are still at some of the highest rates we’ve seen,” Lebenthal, whose firm specializes in municipal bonds, said.

Lebenthal Still a Muni Believer

Cities and states are also continuing to issue debt because rates are still so low.

Lebenthal recommends individual investors looking to invest in municipal bonds should invest through funds. “Then you have a professional manager overseeing things. So if there is a problem that manager will be looking at that credit long before anybody in the media is and will make a decision whether to buy or sell that bond,” she said.