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| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| More |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Muni Bonds Worth A Look
Rising Yields Could Make The Risk Highly Rewarding |
- July 18, 2008
The municipal bond market has had a rough ride in the past six months, but that could mean now is a good time to invest in the sector.
For the second consecutive quarter, fallout from the sub-prime-induced credit crunch sent yields rising on most muni securities, although they didn't jump as high as they did in the first quarter. A major concern remains the financial condition of the insurance firms backing many muni bonds because those insurers are also on the hook for billions of dollars in losses on mortgage bonds.
"We here in muni-land are fraught with several problems," said Marilyn Cohen, president and chief executive of Envision Capital Management in Los Angeles. "There's the whole credit crisis, the fact that the insurance isn't worth the paper it's written on and the possibility of rising interest rates."
That combination spells risk but also the possibility of bigger-than-usual rewards in the form of higher yields
The performance reflects the rise of yields during the quarter. Because a bond's yield and its market value move in opposite directions, if you already own muni bonds, you want yields in the muni market to go down, not up. But if you're thinking of getting into the market, a relatively high yield on a bond means it's relatively cheap.
Although muni yields retreated since the second quarter ended Monday, they remain elevated compared with their average level in recent years. And the fact that interest on munis is exempt from federal and often state income tax only increases their attraction.
Of course, higher yields also mean higher risk, at least as perceived by the bond market. In addition to the problem of bond insurers, worry that the weak economy will hurt the financial condition of state and local governments, increasing somewhat the low odds of default on the securities.
Rising inflation is also a concern. By itself, inflation reduces the lure of most fixed-income investments because their future payments aren't adjusted for price changes. In addition, inflation fears might lead the Federal Reserve to boost its key short-term interest rate, which can lead to higher yields in the overall bond market, reducing the value of existing bonds.
That said, experts advise investors to tread carefully. Their suggestions:
• Buy bonds with relatively short maturities — in the range of five to 10 years. That's because bonds with longer maturities are more vulnerable to a loss of value if interest rates rise.
• Look for general-obligation bonds. Because they are backed by a government's taxing authority, general-obligation bonds carry a significantly lower risk of default than revenue bonds, whose repayment hinges on the tax revenue generated by a particular project.
• Diversify. Just as it's far riskier to invest in one stock than in a broadly diversified stock portfolio, you're better off diversifying your bond investments.
• Remember taxes. The tax exemption accounts for much of a municipal bond's value. But there's no tax benefit if you buy muni bonds in a tax-deferred account such as an IRA. And if you're in a low tax bracket or you live in a low-tax state, muni bonds might not be for you. But if you're a high-income taxpayer in a high-tax state and you're investing in a taxable account, it doesn't take much of a return to get a great taxable-equivalent yield.
Kathy Kristof is a columnist at the Los Angeles Times.
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Income Security Recommendation January 2013 Issue.
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