Yield-Hungry Investors Reach for Muni Bonds
Kiplinger's Personal Finance (06/03) Vol. 10, No. 6 p.60; Dobbs, Lou

Municipal bonds may be a good investment choice for many retirees, given their after-tax yield advantages and their reputation as a conservative investment, but there are still some safety issues investors should pay attention to. States are not in the best financial condition right now, and while high-quality munis rarely default, such defaults are not unheard of; they can also be downgraded. A good general rule for when to look at munis is when their taxable-equivalent yields are at least a half-point higher than comparable Treasuries' yields, although this advantage needs to be weighed against the absolute safety Treasuries offer. Investors should look for munis with the best ratings from rating agencies, including those from Standard & Poor's, which can be obtained by calling the rating desk or via email by using the Standard & Poor's Web site. Investors should focus first on general-obligation bonds, and get information on the bonds from the Municipal Securities Rulemaking Board and one of the four Nationally Recognized Municipal Securities Information Repositories. Finally, investors should diversify geographically as well as among issuers; they should keep cash in a lower-yielding money-market fund while they wait for rates to rise; and they should not put too much faith in bond insurance, which does not guarantee that the price of the bond will not fall below what the investor paid.


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