Word: munis
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Dates: during 2000-2009
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INVESTING A20 Arnold's budget fix might shake up the muni-bond market. Here's how you can take advantage...
What is it about California? Somehow the land of movie-star Governors has managed to get people excited about municipal bonds--those investment workhorses that pay for new schools and sewers and earn you tax-free income all at the same time. The big show in the muni market this year is the Golden State's $15 billion offering, the largest in the nation's history and the presumptive first step in curing California's severe fiscal woes...
...muni holder, you may have already felt the impact, even though the first wave of new bonds isn't likely to hit the market until this summer. Just the promise of a new supply can drive down prices on current bonds. Yields, which move in the opposite direction of prices, generally rose the day California voters green-lighted the bonds...
That has been a familiar story the past two years, as U.S. states have refilled depleted coffers by taking advantage of low interest rates to roll out a record number of munis. In 2002, $430 billion of munis were sold, according to the Bond Market Association, the most ever in a single year--until 2003, that is, when $452 billion worth hit the market. That flood of paper has helped keep muni yields high relative to Treasuries and has provided a nice windfall for yield-seeking investors...
Next I lunched with Ms. Muni Bonds. But municipals aren't great for someone in the 15% tax bracket, as I expected to be. I attended a delicious complimentary dinner, at which I met Mr. Cash-Flow Chart, who later projected how fantastically my retirement savings would grow. Unfortunately, his math was as fantastic as his chart. Mr. Financial Planner was recommended by a colleague. All I needed to hear of his financial plan was that it was a plan to relieve me of a large chunk of my finances each year in return for his services. Then, through...