Word: munising
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A little over a year ago, the credit crisis caused the municipal-bond market to grind to a halt. Shell-shocked investors pulled back from even munis, which are normally considered a relatively safe bet. Bond yields soared. Local governments were forced to delay raising money. And auctions of short...
The higher yields of BABs have made muni bonds more attractive to pension funds and other nonprofit (i.e., tax-free) investors. And that new demand is driving down the yields on traditional muni bonds because there are relatively fewer of them issued. BABs, unlike traditional munis, are taxable. For most...
In the past two years, however, munis' predictability has been replaced by volatility. The bonds of state and local governments were among the worst performing sectors of the debt market in 2007, before falling off a cliff last year. The average muni bond fund lost 9.4% in 2008, and there...
At first, the losses did not really unnerve muni investors because they stemmed from a special problem relating to muni bond insurers, such as MBIA, which ran into financial difficulty. For that reason, many analysts and investors saw that early selloff in munis as a buying opportunity. The insurers may...
Because of these issues, muni bonds don't seem particularly cheap even though munis now yield more than Treasuries. Indeed, Gary Strumeyer, head of capital markets at Bank of New York Mellon, says munis are no longer in the same rock-solid category as Treasuries, so it's not even...