Munis: The Stench of Risk or of Opportunity?
The market for municipal bonds has been in distress since late last year. Investors have been selling bonds, states and cities have been declining to issue bonds, bond funds have seen massive exits of capital, and a lively debate has arisen about the likelihood of sizable bond defaults.
Many of those with the most experience in muni funds believe that the risks in munis is overstated, creating an opportunity to buy the bonds.
Heres the latest such talk from the Wall Street Journal:
Some attractive municipals have tax-exempt yields that, for a high-income taxpayer, would be equivalent to around 5% on a taxable bond. And "where are you getting a 5% [taxable] yield with not a lot of risk?" says Dick Bellmer, Deerfield's founder and president.
Munis have been pricing at this level for several months now—this isn't some blip on the screen. How long can people keep claiming that the falling prices are not evidence of risk?
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