Muni Bonds: Time to Head for Higher Ground?

[jiimbergin]

I am sure many of you have seen this but for those who have not here is a Jesse article.
http://jessescrossroadscafe.blogspot...or-higher.html

30 April 2010

Muni Bonds: Time to Head for Higher Ground?





J. P. Morgan and Charles Schwab have just announced a program to make municipal bonds more available to small investors.



Let's see, record low interest rates and looming risk of default from undisclosed obligations, or perhaps a brisk uptake in inflation. Sounds like a plan (for the big dogs to unload).

Yikes!

[metalman]

Re: Muni Bonds: Time to Head for Higher Ground?

good contrary indicator... jpm pimping munis to widows & orphans. ej mentions in his latest that goldman put out a report last month pimping munis. but he says...

CI: Municipal bonds have been getting a lot of press lately. Goldman came out with a report last month that points out that the historical default rate is 0.02%. Others think munis are a tinderbox about to go up in flames because local governments can’t collect enough taxes to pay them.

EJ: The reason the default rate on muni bonds is so low is that personal and business cash flows to pay them off are virtually guaranteed. Before a municipality defaults on its bonds, it will lay off every teacher, policeman, and fire fighter, and default on pension obligations. They way municipal governments figure it, if they lose their credit rating they’re sunk, no to mention they’ll lose their own jobs. So there’s always enough money to pay the bonds, even if there’s no money for anything else. The Next Crash - Part II: Out of Gas - Eric Janszen

decent explanation for the super low default rates on munis... but what about inflation?

[we_are_toast]

Re: Muni Bonds: Time to Head for Higher Ground?

Investors continue to assume that financial calculations would trump political calculations — that is, that no state or city would default because it would cut off access to credit. But a state or city that did cut down its obligations might have an easier time getting financing, since new bondholders would know that its finances were sustainable.

Lenders Forsaken

As municipal debt grows, the risk mounts that someday it will be politically, economically and financially worthwhile for borrowers to escape it. When that happens, the protections that lenders supposedly enjoy will be meaningless. Lenders shouldn't take solace in states' inability to access bankruptcy codes: A state could certainly stop making payments on its debt without going into bankruptcy.

But there's always Uncle Sam, right? In relying on future bailouts, investors are taking a gamble. When the White House rescued Chrysler and General Motors, it forced bondholders to take bigger losses than union members did. And as Europe's woes may be showing now, sometimes governments are just too big to bail out.

http://www.investors.com/NewsAndAnal...aspx?id=531813

[chr5648]

Re: Muni Bonds: Time to Head for Higher Ground?

good contrary indicator

Just what I was thinking.

[don]

Re: Muni Bonds: Time to Head for Higher Ground?

Is there an online site (Barron's?) that cross references bond rates, maturity dates, and gains or haircuts for pre-maturity selling?