Despite Bond Pricing, Muni Bonds Still Remain Appealing

It’s hardly news: Bond pricing is on the rise while muni bond yields continue to drop. However, it’s hard to imagine that borrowers will find a better form of instrument from which to make money. After all, while muni bonds have still maintained their good reputation -- despite all the debt turmoil from within the United States, municipal bond defaults are still a rare occurrence. Moreover, because the stock market has continually battered investors, and the risk associated with aptly named junk bonds still makes everyone far too nervous to partake, investors by and large continue to favor muni bonds.

The Strength of Muni Bonds

Even taking into account the current state of bond pricing and yields, there are many reasons to maintain a bond portfolio of munis.

Of course, the historically low frequency of municipal bond defaults is a feature that makes munis a popular favorite, but there are also a number of additional benefits to municipal bonds. For the uninitiated, the tax-free nature of income earned by investors is one of the main draws. Borrowers also see muni bonds as an instrument for diversification when it comes to managing their portfolios.

Muni Bonds Vs. The Rest

Compared to the volatility in the stock market, muni bonds are far less subject to fluctuate in price, and those who invest carefully are highly unlikely to experience municipal bond defaults. Also, when measured alongside other forms of bonds, muni bond pricing for tax free bonds is subject to stand firm. After all, the taxation authority of municipalities greatly minimizes municipal bond defaults.

About the Current Bond Pricing

Being influenced by record low bond yields for the time being, bond pricing typically stays steady for lengthy periods of time. This lack of volatility is what attracts many investors to munis in the first place.

At the end of the day, bondholders can collectively obtain respectable returns that, more often than not, outweigh all other forms of bonds, despite current bond pricing. Investors who aren’t satisfied with their projected returns should consider taking on more risk by seeking municipal bonds of higher yields. Don’t forget that these instruments are a historically safe investment with municipal bond defaults being very rare. You’re really only playing with fire when you’re eyeing a low grade junk bond in the corporate sector.