Are municipal bonds still a safe investment?

Bonds are typically a safe investment, at least compared to stocks. The benefit of municipal bonds is that their interest is always tax-exempt at the federal level, and if you buy municipal bonds issued by your state of residence, you avoid state and local taxes as well.

Why are munis attractive to investors?

Municipal bonds can make an attractive investment option for conservative, income-oriented investors because the interest income is often exempt from federal, and potentially state, income taxes.

Why are municipal bonds going down?

“Funds have to sell bonds to meet redemptions, putting pressure on prices, causing more redemptions.” Muni-bond prices have plunged amid concern about renewed inflation, a flood of supply from issuers and speculation that Congressional Republicans, after winning control of the U.S. House in the Nov.

Can bonds make you rich?

Making Money From a Coupon-Paying Bond There are two ways that investors make money from bonds. The individual investor buys bonds directly, with the aim of holding them until they mature in order to profit from the interest they earn. They may also buy into a bond mutual fund or a bond exchange-traded fund (ETF).

What is the average return on municipal bonds?

According to Andrew Clinton, the founder and CEO of Clinton Investment Management, the yields to worst for investment-grade municipal bonds (rated Baa or higher by Moody’s Investors Service or BBB or higher by S&P Global) with an average of10 years until maturity now range between 2% and 2.25%.

What are the risks of investing in municipal bonds?

Investors in municipal bonds face a number of risks, specifically including: Call risk. Call risk refers to the potential for an issuer to repay a bond before its maturity date, something that an issuer may do if interest rates decline — much as a homeowner might refinance a mortgage loan to benefit from lower interest rates.

Why are there so many defaults on muni bonds?

Such defaults are the bane of the municipal bond market since they are generally motivated by a desire to get out of a high coupon bond that has no early call provision. We saw a wave of such defaults in the 1980s as we came down from the high rates back then and I suppose, with the benefit of 20/20 hindsight, we can expect quite a few in 2020.

What’s the interest rate on a 2029 muni bond?

January 1, 2029 $ 105,000 8.5% 74442PKG9 What is curious here is that the above information was copied directly from the Huntington letter. It makes the call appear less onerous since the bonds had only two years left anyway.

Who is a conduit for a municipal bond?

In addition, municipal borrowers sometimes issue bonds on behalf of private entities such as non-profit colleges or hospitals. These “conduit” borrowers typically agree to repay the issuer, who pays the interest and principal on the bonds.