Jeffrey Gundlach: Munis Are The New Subprime

The public, protesting within many of the States about to default, has yet to realize the driving force behind their fiscal problems. That is, the inability to borrow and/or service existing debt because the municipal bond market has entered a deep freeze.

Bond king Jeff Gundlach likened municipal bonds to subprime mortgage bonds on CNBC’s Strategy Session on Wednesday.

“You’ve got a history of low defaults, which is comforting. But that kind of sounds like what subprime sounded like back in 2006,” Gundlach said.

Gundlach said the markets for subprime bonds and municipal bonds are similar because the buyers are similar. Muni bond buyers aren’t seeking fundamentally good credit stories—they are buying for “technical reasons,” Gundlach said. This is exactly what happened with subprime

Source: cnbc.com

From Bob