Bloomberg has a story a bout how "dumb" money is fleeing municipal bond mutual funds. Later in the article, though, do it yourself investors are credited with aggressively buying individual bonds. Advisors and brokers are also buying on behalf of their clients, but at about half the rate as DIY investors, according to BondDesk Group.
Municipal bonds may be the best value in the fixed income marketplace today. Muni bonds are trading at 40 to 90 basis points higher yields than treasuries, depending on the maturities. They usually trade at parity on a taxable equivalent basis. The pricing is suggesting that munis are expected to default at a rate of 1% per year, a rate six time higher than since July 2009 and 15 times the rate since the 1970s.
Right now, the muni market appears to be offering free money. There are some opportunities overseas as well, with European gilts trading at 100 basis points over Treasuries, and Australian governments at 200 basis points. These yield advantages assume no turnaround in the value of the dollar, which can not be assured. Certainly, the bonds on the taxable portion of client portfolios should be in tax exempts.
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