Low Muni Bond Yields: Hardly an End-Game Signal

While muni bond yields may be at record lows for the time being, investors should remember that muni bonds are still widely considered to be the most popular, time-honored form of investments. Munis have always been attractive to common sense investors, and although many changes have been made to munis over the years, the principal appeal still remains the same.

Investors Shouldn’t Rule out Bonds despite Low Muni Bond Yields

While bond pricing may be down for the time being, the same can also be said about the frequency of municipal bond defaults. The fact that munis have historically returned respectable income to investors, while remaining a relatively low risk investment instrument, ensures that state municipal bonds will continue to remain a popular choice for any bond portfolio.

Munis Vs Other Investments

Moreover, municipal bonds always fair well when compared directly to other forms of bonds. For example, a high grade muni will benefit investors with minimal risk of muni bond defaults and appreciable income levels that will always trump Treasury bonds. Additionally, what appeals most to bondholders is the allure of earning tax-free interest. Indeed, while the popular Build America Bonds are taxable, many types of municipal bonds are entirely non-taxable.

Muni sales may be down due to low muni bond yields, but municipal bonds are sure to rebound in due time. In fact, bonds in general are likely to prosper as more investors become aware of the benefits that the market holds. This even applies to junk bonds, which may get a bad rap due to the higher levels of associated risk, but are still relatively safe compared to the equivalent, corporate stocks.

With municipal bonds, you're not obligated to own shares in a particular entity, instead bondholders are present with a contract that ensures they will be paid interest, in addition to collecting the principal amount upon the date of maturity.

Who’s Afraid of the Big Bad Municipal Bond Defaults?

Investors have little to fear in terms of municipal bond defaults; playing it safe can be especially rewarding. Many of the biggest success stories in the bond market involve individuals who got rich off of simply sitting on their bonds and collecting income. Furthermore, the risk of municipal bond defaults is especially low for investors who play it safe by holding their bonds to maturity.

Bondholders will ultimately recognize that the risk of municipal bond defaults is startlingly low, particularly when these investment instruments are compared with other forms of bonds. When muni bond yields should happen to rise again, you can count on bond sales to follow suit in short order.