Financial Analysis Of Robert Citron's Investment Strategy?

Clearly, based on above explanation, Robert Citron’s investment strategy seemed not difficult to understand. It was a leveraged bet that the interest rates would remain stable or fall. Thus, this strategy had been profitable in the years prior to 1994 as the interest rates fell. However, when interest rates reversed its direction in early 1994, Citron’s strategy and fortuned became worse. First thing is the decline of interest rate gave a huge impact in municipal bonds across the country, with the return on the Bond Buyer municipal bond index rising to 7.06% from 6.92%, while the rates on taxable Treasury bonds rose much less. From this situation, it is still not clear if the bondholders in Orange County will bear any losses but it can be
Standard & Poor's cut its ratings on $1.6 billion and Orange County's debt to be "speculative." The county's bonds are clearly worth less now than before the bankruptcy, but how much less remains uncertain, because the bonds did not trade after the bankruptcy. These agencies sell bonds too and Standard & Poor's said it might probably lower the credit rating on more than $800 million of their debt. The decrease of bond rating of the county was likely to suffer for a generation and as a result the county’s credit rating fell to “junk” status. This default rating actually hurt the county’s ability to attract more investors to invest. In fact, all California bond issues affected badly, as did to the entire municipal bond market. The most actively bond traded issues, as measured by the Bond Buyer Municipal Index, lost about $10.50 for every $1,000 of face value. According to Morningstar Inc. STI Classic Investment Grade Tax-Exempt Bond Fund, most exposed funds percentage of holdings were exposed to the county's problems which included 12% from Alliance Municipal Income California, 8.8% from Merrill Lynch California Limited Maturity, 8.5% from Schwab California, Short Intermediate Fund, 8.3% from California Investment Tax-Free and 8.0% from largest positions Portfolios with the most money in Orange County debt. Therefore, the most exposed fund with highest percentage is Alliance Municipal Income California by 12%. While according to CDA/Spectrum's Bondwatch, Franklin California Tax-Free Income is $229.1 million, Putnam California Tax Exempt Income is $71.5 million, Merrill Lynch CMA Tax Exempt Fund is $68.9 million, Alliance Municipal Income California is $65.6 million, and Allstate Insurance Company is $45 million. Based on the tax exempt income, it shows that Franklin California Tax-Free recorded the highest among others. Early