Monday, April 28, 2008

U.S. Supreme Court Deliberating Since November On Kentucky v. Davis

The U.S. Supreme Court has been deliberating the Commonwealth of Kentucky v. Davis municipal bond case since November. Joe Mysak of Bloomberg notes, "the longer the court considers the matter, the more possibility there is of mischief. Sometimes the judges rule not only on the subject at hand, but on other things, too." He also indicates the ruling could be a surprise to the municipal bond market since it is not on many radars at the moment.
"You would think a Supreme Court ruling that has the potential to overturn the status quo and remake the mutual-fund business would have everyone in the market talking. It's a sign of the trouble brewing in this market that Kentucky v. Davis, the case before the court, is barely on the radar.

"If the judges decide that states don't have the right to discriminate against out-of-state bonds, why would anyone want to keep their money in the almost 500 single-state bond funds? That's just for starters.

The longer the court deliberates, the knottier the ruling may be. I am waiting for one of those very special 'this, but also this' rulings that keep bond lawyers guessing for weeks."
Detail on the opinion, when released, can be found
The uncertainly surrounding this bond ruling may be one reason municipal bonds are yielding nearly the same as Treasuries. Additional stories about this case can be found at the following blog posts on this site:


Court Case Is Lost in Cauldron of Muni Market Woes
By: Joe Mysak
April 15, 2008

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