The Municipal Bond is Sturdy Now but May Need Saving

Yields are climbing on the average municipal bond , and the more excitable investors among us are interpreting this as a sign that there’s even further risk of state and local governments defaulting – which will in turn lead to the sort of massive meltdown crisis that the Warren Buffets of the world have outspokenly predicted. As investors’ anxiety rises along with yields on municipal bonds, it’s no surprise that the trend right now is to rally behind safe bids, and the municipal bond market is experiencing some residual flack.

To further add to the perception of turbulence in the municipal bonds market, Build America Bonds, although they’ve proven to be hugely popular, may be starting to slow in sales, due to the high bond pricing that comes with the hefty underwriting fees that the fat cats on Wall Street are profiting on.

Municipal Bonds: Still Standing

Fortunately, despite widespread concern, bond values still remains sturdy. This is because muni bonds still offer consistent income and controlled risk relative to corporate bonds, which have largely hit a sales slump in the last few months. Indeed, the municipal bond market is going far stronger than their junk bond brethren, but it should be noted that municipal bonds are underperforming treasury bonds, which will forever serve as the safe haven for the nervous investor. Ultimately, the muni bond market is still stable and can promise predictable income for investors more often than not. As long as this fact remains true, investors will continue to include municipal bonds in their investment portfolios.

To further attest to the strength of municipal bonds, the default rate on munis is actually on the downslide. In the present year, only 19 issuers have defaulted, which is far lower than municipal bond debt accrued in the previous two years combined.

Municipal Bond Solutions

While the municipal bond market continues to press on while sailing through the stormy seas of our economy, it would be most prudent for investors to ponder over what can be done to fix the problems that may lead to the possible undoing of municipal bonds. It’s ultimately the responsibility of the state and local governments to create an action list that will effectively curb habitual borrowing, which has risen to record highs, and determine how to diffuse the unprecedented levels of debt.