Municipal Bond Forum
Wait And Watch?
Q
Regarding your article Eye-Popping Yields Are Right Under Your Nose: Waiting and watching is exactly what to do. Rates will revert to the mean and many municipalities that are in debt may default. So unless the bonds are insured by a reliable insurance company, this is no time to put money in munis.
A
James A. Klotz responds:
We can’t help but wonder how long you have been waiting and watching. Most economists have been calling for higher interest rates for at least the past five years.
If you do the math, you will probably find that interest rates must rise to unrealistic heights to make up for the income investors have already sacrificed by waiting. The cost of waiting can be more substantial than most realize, and rates might stay low far longer than you think.
Although defaults in the muni market make up less than 1% of total issuance, we certainly have no quarrel with buying higher rated, insured bonds for an extra degree of security.
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