CHICAGO (Reuters) – Despite the Detroit bankruptcy and record sell-off of municipal bonds this year, most top-quality “munis” are safe to hold.
If you are a conservative, buy-and-hold investor who wants to temper risk, you might want to stick to the highest-rated bonds from states and localities that do not have looming pension or other payment problems.
Those quality munis offer decent yields and their prices are even more attractive in the wake of the Detroit bankruptcy.
Reacting to higher interest rates and the high-profile troubles of some states and cities, investors have been pulling out of muni bonds and the mutual funds and exchange-traded funds (ETFs) that hold them. They withdrew $1.2 billion out of U.S. municipal bond mutual funds in the week ending July 24, according to Lipper, a Thomson-Reuters company; more than $20 billion has been withdrawn in the second quarter of this year.
Muni-bond ETFs have taken their lumps of late because of the sell-off. The iShares S&P National AMT-Free Muni Bond ETF (MUB), which invests in an index representing the U.S. muni-bond market, for example, is down 4 percent for the year through July 26 and off more than 6 percent over the past three months. It is yielding nearly 2 percent.