Articles

The US Treasury announced its new I Bond rate of 5.64% after adding the fixed and variable components.

California last week raised $5 billion dollars to avert a cash crunch stemming from the credit meltdown. The most interesting thing about it is they skipped the big investment banks and went directly to their consumers.

Many analysts and investor watch dog groups are saying that municipal bond issuers are not providing enough information to their investors. Issuers are only required to file an annual report but in today's market, a bond rating or the material condition of the municipality could change in months.

It is a given that we are in a serious recession. It is a given too that a number of municipalities will fail as the recession deepens and tax revenues decline. Those with capital preservation high on their list of priorities, will see the writing on the wall and reduce if not eliminate their exposure to municipal bonds before it is too late.

There has been a lot of discussion recently on the different yield between AAA municipal bonds and lower rated munis. A paper by the Fed seems to indicate that if you plan on holding on to your bonds, you may be better off buying lower rates munis.

It used to be that one sure way to put away chunks of money safely and enjoy double or triple tax free income was to invest in municipal bonds. Sure, you paid a slight premium to buy triple A bonds and even a bit more to buy those insured by such dependable giants as MBIA and Ambac. Munis that were triple A, insured were a safe bet, and one you could hold for long periods of time and sleep well. Because they were so highly rated and insured, one never felt the need to look closely at the credit worthiness of the underlying entity, be it hospital, electric authority, city, or university. But those have turned out to be all wrong assumptions in today’s world of credit problems and huge write-offs. It is much the same as if apple pie and motherhood suddenly fell from grace. Much the same, except that in the case of municipal bonds, huge amounts of money (money people felt was safely put away), are at great risk.

Municipal bonds used be a clumsy investment for most people, especially when one had to buy them individually, usually at $50K and above, from brokers. Then came mutual funds which offered portfolios and charged, with the exception of Vanguard, fairly large fees and were far from liquid. Now, the EFT phenomenon has come to municipals and it is going to be explosive.

Here's what you need to know.

Auction rate securities are attractive here.

The yield on treasury bills plummeted today as investors sought them as a safe haven. Clearly, the impact of the credit crisis is not over.

Municipal bonds are now offering extremely attractive short term interest, beating out comparable Treasuries. They are a great source of tax free income. This is new and may not last very long.