Muni Rates: The Two Schools of Thought

Municipal bonds are considered one of the best types of investments for high tax-bracket investors because of its low-risk factor, high rates of return and tax-shelter features. With a tumultuous economic situation, what has happened to muni rates and are these investments still as good as was the case in fatter economic time? The answer to these two questions has erected two schools of thought.

'''Muni Rates School of Thought #1'''

The first school of thought has financial experts arguing that now is the perfect time to buy municipal bonds. While pricing is not as high so far in 2010 as the muni rates were in 2009, this line of thinking is that the muni rates can only go up from here.

'''Muni Rates School of Thought #2'''

The second school of thought argues that now is not the time to buy municipal bonds. Financial experts speculate that muni rates and the muni situation in general is at too much risk at the moment. Speculation is also unclear as to how much the muni rates would need to increase in order to improve the municipal bond purchase outlook for investors to jump back in the game. Minor increases in muni rates are welcome, but would have very little impact, and would not indicate that all is well with the financial markets.

'''Where the Divide Ends'''

While the two school of thoughts diverge on whether muni rates warrant the risk involved in investing in municipal bonds, the two schools do agree on one point. Both schools believe that investors need to be very careful when choosing which municipal bonds to invest their money in because default rates on municipal bonds west record highs in 2008 and 2009. The default rate, however, was under one percent, so it’s still a much less risky investment than some of the other options out there.