Word: munising
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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...
While that spread has narrowed since last year, the average 10year general-obligation AAA-rated muni still yields 88% of what the 10-year Treasury note does. Since investors generally don't pay federal tax on interest from munis (or state or local tax when they live in the issuing...
The upshot: if tax-free income is what you savor, this is a great time to buy munis. Altria is just blowing smoke about bankruptcy; indeed, at the urging of a large number of states, Illinois has dramatically reduced Altria's appeal bond so that it can keep making settlement...
For a portfolio of munis up to about $100,000, the most cost-effective route to safety and diversification is a well-run, low-cost mutual fund. Some good choices are in the box at left. For bigger portfolios, it pays to buy (and therefore control) your muni bonds directly...
Finally, a word on munis for the growing ranks of investors who must pay the hated alternative minimum tax (AMT): income from "private use" bonds, like those used to fund many stadiums and airports, becomes taxable under the AMT. Muni-bond funds will tell you their AMT exposure if you...