Mallas avoids general obligation bonds and focuses on revenue bonds, which he says are less prone to credit risk. He prefers debt issued for essential activities that will do well during an economic downturn such as water, sewer, electric and utilities.
“People will still need lights and water,” he says.
He says investors should look into funds that have diverse holdings and are not making big bets. Mallas says investors have been burned by not knowing what they were buying. “If it looks too good to be true, maybe it is,” he says.
Janet Grangaard, senior portfolio manager of the Thrivent Municipal Bond (TMBIX) which is up 8.12% this year, says credit spreads are also attractive.
“Credit spreads are not as wide as in fourth quarter 2008, but are still relatively wide over longer time frame,” she says, adding a yield curve this steep is very rare.
Grangaard invests in electric, sewer, elementary, secondary and higher education, and non-profit hospitals. She’s avoiding student loans and housing bonds right now.
She has taken recent positions in the A-rated portion of the muni bond market where credit spreads are attractive “if the economy disappoints, [and] still have margin of error security."
Grangaard says investors should maintain a broad diversity across states. For example, recent problems in California bonds have been offset by investments in Texas bonds.
No immediate information was available for Mallas or Grangaard or their firms.
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