Bond Values are Down; Muni Bonds are Hardly Out

Bond values have taken a significant hit now that municipal bond yields have finally sunk to new depths. In recent weeks, it had been reported that municipal bond pricing and yields had been dropping ever since reaching highs that had investors feeling nervous in the first half of 2010. Moreover, the trend continued into this week, now plummeting to new record lows. While many expressed concerns that high yields translated to bad omens for the municipal bond market, the low yields that have dragged municipal bond pricing down may now be too unattractive to investors, who have traditionally turned to munis to make more than could ever be possible through Treasury bonds and fret not over the thought of muni bond default risk.

Will Muni Bonds Be Abandoned?

While muni bond values had appealed to investors in weeks prior, with sales being on the upturn overall, last week, borrowers sold their lowest amount of debt in weeks -- at just under $7 billion while corporate junk bond sales began to ratchet up a notch, climbing by a significant 17%.

Investors have always walked away from overly low yields and bond pricing. When bond values begin to dwindle it’s no shock to see investors return to fatty yields. While these individuals may tend to prefer the middle of the road risk levels and bond values associated with munis, earning significant income is the ultimate end goal. In truth, more investors turning to corporate bonds can be construed as a sign that confidence is once again returning to the bond market. Municipal bonds aren’t likely to be abandoned en masse, despite the low bond pricing and yields, because even-keeled individuals will understand that while bond values may be down for the time being, they’re still likely to hold more in store for investors than Treasury bonds.

BABs Remain Ever-Popular despite Momentary Slump for Munis

Meanwhile, the demand for BABs increased by as much as 30 percent. Build America Bonds continue to provide respectable bond pricing and now sport more accommodating write up fees. While the trends may change over time, muni bonds of all kinds will remain a favorite avenue among investors, because they ultimately offer dependable income and reasonable bond pricing relative to other types of bond instruments.