NEW YORK Aug 9 The asset value of municipal
bond closed-end funds has fallen over the last two months and
could be set to drop further as interest rates rise, according
to a report by Fitch Ratings released on Friday.
The 188 closed end funds that specialize in municipal bonds
saw their net asset values fall more than 12 percent over May
and July, with the heaviest losses concentrated in longer-dated
funds, Fitch said.
"Further short-term losses are probable as the Fed continues
to reverse its monetary easing policies," Fitch said.
Fitch said its sensitivity analysis shows a 1 percent
parallel rise in interest rates would lead to an immediate 16
percent decline in asset value for funds that have portfolio
durations of more than 10 years, which is more than 71 percent
of funds in the sector.
However, Fitch said falling bond prices also represent a
reinvestment opportunity for fund mangers.
"Conservatively positioned managers are able to successfully
capitalize on price dislocations by purchasing quality bonds
that, in their view, became much more attractively priced,"
Fitch added that "any short-term decline in NAVs for the
sector due to rising rates should be partially offset over time
by the ability to reinvest at higher yields."
The yield on 10-year U.S. Treasury note surged to 2.5
percent toward the end of June 2013 from 1.5 percent on May 1,