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What is the trend of historical municipal bond yields?
The municipal bond market represents 1.5 million issues sold by 50,000 issuers with a varying range of credit ratings, and traded and underwritten by as many as 2,000 dealers. This far outpaces the number of issues listed by the U.S. stock market. Historical municipal bond yields keep growing, especially when the economy is in a downward spiral.
The concept of a boring and safe municipal bond sounds pretty good after the roller coaster rides of the economy. As companies and private citizens alike have watched investments drop, they seem to take a sense of solace in historical municipal bond yields: while lower, at least it seems safer.
There are a number of credible on-line resources to use for electronic up to the minute information on historical municipal bond yields. Whether you are looking at a five year, ten year or thirty year history, the graph continues an nice gradual upward spiral. The yield rate can be lower than other types of investments, but they have always been considered a less risky form of investment.
An example of this could be the U.S. Treasury Yield Curve Bond Yield and Performance at a Glance in the Market Data Center. The shorter the bond duration the lower the yield. A two year bond may only yield two percent, but the graph continues increasing as you head toward the ten year which is a tad less than four percent.
A rule of thumb is always the checks and balances on the number of investors. During poor economic times, municipal bonds seem to represent a safer place to invest the dollars. The historic municipal bonds yield can then begin to make a shaky change as too many investors create a supply and demand situation.
The current trend has extended itself so that there is an upward swing in the actual historical municipal bonds trend. Safe is now turning into a view that looks a bit more attractive on yields than in the past. At the current time, municipal bonds are paying more than U.S. bonds. If you add in the tax factor, the investor can get more than double the after tax return on treasuries.
Due to the downgrade by major ratings agencies of the guarantors of mortgage-related securities, the higher ratings now reflect a better quality selection of municipal bonds choices. However, unrated municipal bonds remain the thorn in the proverbial side. According to S&P, about eighty five percent of the 1,300 unrated municipal bonds have defaulted since 1986. While this trend may continue, the vast majority of these will be small, whose bonds are not widely held.
Educating yourself through credible on-line sources and financial consultants will help to make the correct choices for investment. A good benchmark will be to evaluate your portfolio and decide to add based on an in depth examination. Selection of municipal bonds should be balanced, using the historical track record as well as a blend of some of the newer higher risk investments. A little homework goes a long way.
The information supplied in this article is not to be considered as medical advice and is for educational purposes only.
|Bond Investment9 Apr 2010|