Are Municipal Bond Defaults Inevitable?

Municipal bond defaults do happen, but they’re not terribly common. When considering muni bonds, investors may have some concerns regarding which side to believe in the great municipal bonds debate that's being waged across the Internet. Depending upon whom you ask, you’re either told munis are far too risky to consider in the current economic climate, or you’re assured that this particular asset class is as sturdy as they come and will continue to bring benefits to bondholders for as long as Cher and the cockroaches continue to stick around.

Municipal Bond Defaults Not Likely

Indeed, bondholders have just about heard it all concerning the dangers of muni bonds Vs BAB bonds, but before you put stock into the notion that municipal bonds are headed for a fiery doom when states can no longer bear the weight of their own debts, you should also know that many consider municipal bonds to remain the best form of fixed income investments.

Recently, municipal bond spreads have broadened despite the negative news headlines, and while there are some key differences between muni bonds Vs BAB bonds, both are currently able to garner greater returns when compared to other types of bonds. This is because muni bonds fare the best after fees, taxes, and inflation are factored in. Moreover, rather than worrying over a future filled with municipal bond defaults, more investors should consider just how greatly muni bonds will benefit when the Bush tax cuts go bye-bye.

Not All Bonds are Created Equally

Despite analysts having urged bondholders to sell their munis now and perish the thought of buying long-term, municipal bonds have recently been voted the most sought after asset class for investors.

Still, things aren’t all rosy in the world of municipal bonds. When comparing muni bonds Vs BAB bonds, traditional munis have remained sturdy while what previously had seemed impossible has now come to pass -- the fervor over Build America Bonds has begun to dwindle. For the third week in a row, issuance of BABs has been on the downslide. Although these instruments remain a viable component of any bond portfolio, this recent turn of events illustrates BABs have their share of issues and should be invested with some degree of caution.

In general, current bondholders have little reason to quake in fear over the thought of losing money due to muni bond defaults, but they still need to keep their ears to the ground and make sure they don’t fall victim to the possibility of municipal bond defaults. To avoid these issues, conducting thorough bond analysis is highly recommended. Fortunately, you can track and measure your bond online with ease in the Internet age, courtesy of BondView.