Default Risks of Conduit Bonds
Municipal Bonds and Defaults
Securities Exchange Commission
CommonMuni
Lowering Borrowing Costs for States and Municipalities Through CommonMuni.
Municipal Bond Funds vs. Individual Municipal Bonds
In municipal fixed income investing there is an on-going debate over the advisability of investing in municipal bond funds versus investing individual municipal bonds. Investment professionals on both sides of the argument have persuasively outlined the advantages and disadvantages of either approach. As the analysis has continued over the years, it seems that the only agreed upon conclusion is that the answer ultimately depends on the individual circumstances (age, health, employment status, tax bracket, net worth, investment understanding, etc.) and investment objectives (growth, income, preservation of principal, etc.) of the investor.
Municipal Bond Credit Surveillance
With more than 50,000 issuers in the municipal bond market representing about 1.5million bond cusips, none are more important than yours. So when the economic climate becomes difficult, investors naturally wonder how they can keep abreast of developments that may affect their municipal bond and municipal bond funds.
Best Muni Bonds
Muni bonds are primarily described as exempt from federal income tax, which makes them an appealing asset for bond investors. Choosing the right muni bonds involves two key considerations which includes the tax exempt status and the pledge for security repayment.
Determining Bond Values
Bond values can be determined in a variety of ways, and the process involved is fairly simple. First, let’s cover some of the key fundamentals. Muni bonds have a set time to mature, which is the date on which the bond issuer will pay the investor the principal amount. Maturity dates can occur anywhere from one day to 20 years after the investor pays the issuer. The amount paid to investors when a bond reaches maturity is also commonly referred to as the face value (or par value).
I Bond Online Versus TIPS Bond
An I Bond Online, or I Savings Bond, is a savings investment sold at face principle that offers interest, low risk and protection against inflation. A TIPS bond, or Treasury Inflation-Protected Security, is a marketable product whose value is influenced by fluctuations in the Consumer Price Index. A TIPS bond accrues interest over the span of six month intervals and reaches maturity over a lifespan of 5, 10 and 30 years.
Investing in Municipal Bonds
Most commonly issued by local governments, municipal bonds can provide solace to investors during an economic recession, as they are putting their money into something local and tangible. Muni bonds are essentially loans. The issuer of the bond, usually a city, county or state municipality, borrows money from the investor (or purchaser of the bond), thus being obligated to pay interest (also referred to as a “coupon” in the finance world) to the investor within a certain timeframe. Most often, interest on municipal bonds is payable semi-annually.
A municipal bond, also endearingly referred to as a “muni,” is a liquid entity, which means it can be bought or sold at any time, and the silver lining for most investors is that the federal government cannot tax the interest collected. Moreover, it can also be exempt from many local taxes.
Additionally, the municipal bond investor can be exempt from state taxes if they maintain residence within the same state where the bond was issued. These tax-related incentives make investing in municipal bonds attractive to those within the higher income tax bracket, as the higher the bracket, the greater the benefit of tax-free income.
Municipal Bond Management
Municipal bond management makes sense for bond holders who want to maximize their investments. Active, persistent portfolio management can make the most of muni bond holdings through attentive, observant decision-making and shrewd adjustments geared to take advantage of ever-changing market trends and developments. Every investor may not necessarily have the time to pay attention to such detail, and this is why one may opt to hire a professional bond manager whose experience and expertise will be conducive toward creating a portfolio that controls risk while yielding more profits. Furthermore, the bigger players in the muni business may have more clout and leverage, affording them the ability to sell bonds faster with more favorable returns.
Municipal Bond Portfolio Analysis
While many investors are comfortable carrying out bond analysis themselves, the process involved can be intimidating for those new to muni bond investing or for those without the natural propensity for processing numbers. While there is a great deal of software and specialized calculators, among other tools, that exist for the purpose of aiding bond portfolio anaylsis, any serious investor that has wanted to go it alone, in lieu of hiring a professional consultant, has been expected to possess a certain affinity for some of the fairly dense mathematics and equations required for determining the pricing and relative value of municipal bonds. Additionally, those specializing in muni bond analysis that have been around for a while will likely possess a certain clout in the market, giving them a sizable advantage over those who are trying to do it themselves, making it a difficult arena to break into.
The Bond Market
If you’re not too familiar with the municipal bond market, there are a few things you first have to know. A municipal bond is a type of bond issued by a local or state government to raise money for major capital projects. The purpose of these types of bonds is to generate money to build hospitals, schools, bridges, roads, sewer systems, prisons and much more. Local governments pay interest on a municipal bond to the bondholder, usually every 6 months. An attractive feature of many municipal securities is that the interest you receive is usually exempt from federal income tax. Interest may also be exempt from state and local taxes, depending on the state where the bond is issued. For in depth information about municipal bonds, including tax information, safety and pricing, visit The Securities Industry and Financial Markets Association.
Todays Bond Values
Bond values fluctuate depending upon the prevailing trends in market interest rates at the time of a muni’s issuing. The interest rate for municipal bonds is also referred to as a coupon in the financial world. These ‘coupon rates’ are set for a bond when it is first issued and remain forever fixed, something that makes investing in municipal bonds unique and appealing for so many, for when general interest rates on the market happen to fall during a given period, bond values may garner a premium if their static interest rates, which are unaffected, happen to be greater.
How Rising Interest Will Effect Muni Rates and Bond Values
Muni rates have benefited as the bond market has enjoyed some popularity recently, but when interest rates inevitably go up, will the bond market still enjoy its resurgence? While bonds are still being widely issued and bought in the face of a nation-wide debt crisis, rising rates could cause serious problems. Bond values go down when market yields go up, and in our current debt climate, many feel the risk of defaults could become a significantly greater risk when this should occur.
Safe Municipal Bond Portfolio Management
What can investors do to maintain a secure municipal bond portfolio in the wake of bond issuing agencies facing such high debt? While the risk of muni bonds defaulting is still relatively low, particularly when compared to corporate bonds, and bond holders are still held as high priority to be paid from tax receipts, investors need to take a more proactive approach and be their own bond manager. This involves conducting one’s own thorough bond analysis, choosing short-term bond types that are less likely to default, and maintaining a diverse portfolio.
Bond Analysis: Become Your Own Municipal Bond Manager
Sound, routine bond analysis can give the investor an edge when seeking to become their own municipal bond manager. Discover the advantages today!
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