The sweet ride municipal bond investors had in 2014 is slowing down. Demand exceeded supply, yields declined, prices went up and investor appetites were voracious. Much of this was due to increased federal tax rates and some state tax increases. Not only is bond demand slowing but yield no longer reflects risk in many cases. Most investors back into buying their municipal bonds. They look at the yield first, the name of the issuer and then maybe the credit metrics (quantifying credit risk).
One way to protect yourself from stumbling into another Detroit, Stockton or Puerto Rico is to buy municipals that are part of a state enhancement program. That’s a program where the state steps in and pays the interest and/or principal if the issuer cannot. The mechanics of these programs vary from state to state. Some make partial payments. Others pay the full amount if the issuer defaults. Read each official statement for the particulars. Here are a few to buy. Westfield Indiana Multi-School Building Corp. 4% Due July 15, 2024 (CUSIP: 96023PJN6), rated A by S&P, priced at 112.4 to yield 2.5% to maturity, which is a TEY of 4.1% for the highest federal taxpayers. Buy Chemeketa Oregon Community College District (CUSIP: 163597HY6), 3.5% DUE JUNE 15, 2025. Finally, buy North Little Rock Arkansas School District #1 (CUSIP: 660631VE9).
Source: Forbes
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