Another View of Muni Bonds

By on January 14, 2011

Municipal bonds have been remarkably weak performers since August 2010.  Over the past two days I’ve initiated a position in the ETF iShares S&P National AMT-Free Muni Bond Fund (MUB) in my discretionary account. 

Rick Ashburn, Principal Chief Investment Officer of Creekside Partners, takes issue with the doom and gloom scenarios expressed by Meredith Whitney and Peter Schiff for this market.

Without delving into the qualifications or experience of these two with regard to municipal credit (none), I instead offer some sensible analysis of the muni bond market. The muni bond market breaks down into two very distinct types of credits. Some bonds are at risk in tough times; others really are not. The categorical tarnishing of all muni credits, as on the recent 60 Minutes segment, is stunningly bad commentary.

Ashburn, after much additional commentary (see source below), concludes:

Again, we agree that some state and local governments face severe budget problems. Perhaps these budget problems are intractable and will only be solved via a debt restructuring. The solution for a bondholder? Stay out of the middle of that fight. Own state-issued general obligation debt, and local government debt that is payable from a dedicated revenue stream that cannot be directed to other purposes.

Source: Reuters
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