The Municipal Bond Market: Four Risk-Reduction Strategies for Diving into Red-Hot Munis…
by Marc Courtenay, Retirement Panel Chairman
The last thing you'd expect to hear is that the humdrum municipal bond market is red hot. But that's exactly what the data is telling us…
We collectively siphoned $82 billion out of money market funds this year. And a whopping 90% (or $73.6 billion) landed smack dab in municipal bond funds.
So what's prompting this historic and rapid migration? And why do analysts expect us to plow at least another $700 million each week into municipal bonds through next year?
The answer is two-fold: higher yields and tax relief.
You see, money market funds are presently paying less than 1%, while the average 30-year municipal bond yields 4.5%. Furthermore, taxes are destined to increase. And interest on most municipal bonds – unlike money market funds – is free from federal income taxes (in some cases, state and local taxes, too).
On the strength of the yield/tax advantages, you likely share an interest in munis, as well. But before you join the herd, it's important to realize that this traditionally conservative asset comes with risks.
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