Municipal Bond Management to Pay Off in the Wake of Deflation

Getting familiar with municipal bond management now may pay dividends before long if the market continues to remain stale and deflation sets in. While widespread muni bond defaults may not be an issue after all, despite what many had feared, another economic recession could very well be at hand. The latest rumblings in the news headlines include concerns coming from economists, who are now pondering the possibility of widespread deflation. In fact, in a recent poll, it appears that more analysts now believe that deflation is likely to be a threat to our economy than inflation.

Is Our Nation in Danger Of Muni Bond Defaults and Deflation?

Although investors were starting to regain their confidence in the U.S. during the worst of Greece’s debt woes, many now feel that the U.S. economic growth is dwindling, and it’s hardly news to hear that home sales are in dire straits. Federal Reserve Chairman, Ben Bernanke, although acknowledging that the economy is underperforming, stated that he doesn’t feel inflation is in the cards for the nation’s economy. Before investors hop on the impending deflation bandwagon, don’t forget the predictions of widespread muni bond defaults that never came to fruition.

To stimulate the economy, some may expect the Obama administration to propose another package that mirrors the president’s 2009 program, but despite the overwhelming success of BABs, many experts believe another stimulus package won’t be necessary. It’s worth mentioning that minor deflation could actually stimulate the economy for a time. Of course, there is always an element of danger here. Companies may fair poorly when prices are lowered and have difficulty staying afloat, leading to large scale problems.

Recession Era Municipal Bond Management: Benefiting While Avoiding Muni Bond Defaults

Investors will waste no time preparing for another economic crisis, and sound municipal bond management is a great place to begin. In truth, municipal bonds actually stand to benefit from a period of deflation. While other asset classes will follow the prevailing trend and drop in stock, muni bonds could very well move inversely, and bond values could climb substantially. Before scrambling to invest in any and all municipal backed security, do be sure to follow municipal bond management 101: Investment diversification. Those who ignore the fundamentals and rely on bond ratings may very well get burned by muni bond defaults (should the backing municipalities falter).