Is Your Bond Portfolio at Risk?

Protecting one's bond portfolio from dubious investment instruments is one of the greater challenges a bondholder can face. Wizened by past experiences, investors who have been badly burned by the major municipal bond ratings agencies now know to remain wary of a muni that has been listed as a AAA grade investment, as the likes of Moody’s and Standards & Poor’s have squandered their good will by assigning high grades to junk bonds.

Bad History in the Bond Market

Investors also know to be particularly cautious about junk bonds, especially in light of the Goldman & Sachs scandal that filled the news headlines in recent months. This contemptible occurrence served to illustrate what can go wrong in the world of corporate bonds. Clients of Goldman Sachs were screwed while the bank went about issuing bonds and subsequently betting against them, causing many a bond portfolio to crash and burn overnight. To no surprise, the municipal bond ratings associated with these instruments failed to depict the danger to investors.

New Municipal Bond Ratings Scandal

To further unnerve investors who fear the safety of their bond portfolio, New Jersey has just made history, demonstrating a dubious first in the municipal bond market by being the first state in the union to be charged by the Security Exchange Commission (SEC) for having violated federal securities laws. The SEC charges that the state of New Jersey failed to disclose necessary information to investors, which would allow them to fairly assess the risks and rewards of the prospective muni bond investments being issued.

By doing this, the state denied bondholders an accurate glimpse at the overall state of New Jersey’s municipal bond market and may very well have allowed them to include munis of dubious value into their personal bond portfolio.

Fortunately for the investors involved, and their tainted bond portfolios, the state’s municipal bond ratings have not been downgraded.

Keeping Your Bond Portfolio Safe

Investors are already having a difficult time regaining their trust for the municipal bond ratings agencies, and they may now be reticent about putting blind faith in the information provided by the states. Bondholders are urged to look beyond the ratings and perform personal bond analysis. To personally assess muni bond yields and pricing is always a sound strategy for investing in municipal bonds, and the bond analysis tools of BondView are a great safeguard to ensure your bond portfolio includes only the most meritorious of munis.