Municipal Bond Forum
Bond safety and the subprime mess
Q
How does the subprime problem affect municipal bonds? Will there be a recession? I personally would be wiped out financially if the municipal bond market failed. What are the real risks in municipal bonds?
A
James A. Klotz responds:
We don’t see the subprime problem having any adverse impact on the credit quality of municipal bonds. Typically, bond holdings appreciate in value during a recession. Slower growth leads to reduced demand for money and ultimately lower interest rates.
Municipal bonds as a class of securities are considered to be second only to Treasury bonds in regard to safety.
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