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Muni bonds were supposed to be the worst risk going this year. That didn't stop me in July from explaining to Seeking Alpha readers why Wall Street was wrong and why buying munis was the best thing that you could have bought. And you know what? They're still one of the best bets right now.

The credit implosion came to its crescendo last fall with the US government heading into a near panic. You know the rest: The big banks were bailed out, smaller banks were cut loose and trillions of dollars were injected into the markets.

The fallout from the credit implosion has brought unemployment to recent historical records of over 10 percent for many states and locales. Businesses have either slowed or failed and properties have plummeted in value - all resulting in a major fall in tax revenues for cities, counties and states. And adding to the mess is that retail sales have also cratered, resulting in major reductions in sales tax revenues.

At the same time, demands on states and locales for welfare and other services has soared. So, we have what most would have said was the perfect storm for municipal bonds. Less tax, more spending is a recipe for failure and defaults on muni bonds.

But what the usual talking heads that were pontificating up down Wall Street missed, was that inside the trillions of dollars of Federal spending programs were plenty of deals for states and locales that were meant to shore up finances and keep the muni bond market humming along.

This was why back last fall and continuing through this year - I kept writing and lecturing that the muni bond market was not only not going to implode - but actually was going to perform.

And like I've been advising for the corporate and global bond markets, I've been writing to buy into a select series of individual minibonds and closed-end bond funds.

Muni Bonds Continue to Deliver Big Profits

Now, it's interesting that all the while that the Wall Street pundits - as well as just about every newsletter guru out there - were pontificating that the muni bond market was going to crash, the serious money guys have been backing up the truck on the same bonds that I've been telling you to buy.

And hopefully you've been following my advice.

The muni market has seen yields not soar with falling prices - but actually muni bond yields have been falling month after month as muni bond prices keep climbing.

Yields of core nationwide non-insured general obligation muni bonds - as tracked by a muni industry specialist - have gone from over 5 percent for longer-term maturities to a current low of 3.79 percent. This means that on a price basis, the general muni market has seen gains of 13 to over 15 percent so far this year alone. And that's on top of the nice state and Federal income tax-free interest paid to investors.

The big guys keep buying with these past several weeks seeing historic high flows into municipal bond funds amounting to billions and billions of dollars. And muni issuers, including the states of Ohio and even California, have successfully placed over 15 billion alone this past quarter at rates that no one was forecasting back last fall.

The Best Muni Bond Funds to Buy Now

All of this is what's behind the huge success of my favorite selection of muni funds. My core recommendations that you should have bought - and should buy more of - include the AllianceBernstein National Muni Fund (NYSE: AFB), the Blackrock Municipal Income Fund II (NYSE: BLE), the Western Asset Managed Muni Fund (NYSE: MMU), the Blackrock Muni Intermediate Fund (NYSE: MUI) as well as the Nuveen Quality Income Muni Fund (NYSE: NQU).

The performance so far this year for these has ranged from over 50 and 60 percent for the AllianceBernstein and Blackrock funds to a still stellar return of near 30 percent for the Nuveen.

The average for the entire set (which is how you should buy these) is running so far at over 43 percent. And along the way, the average dividend yield for the set is running even now at over 6.2 percent which is Federal tax free - giving you an equivalent taxable yield of over 9.6 percent for most investors.

But here's the added kicker - these funds trade still at big discounts to what the underlying muni bond assets are really worth in the actual market. Some of the biggest discounts run in the 6 percent range for Western Asset, Blackrock Intermediate and the Nuveen funds - and the overall average discount for all of my recommended muni funds is just shy of 4 percent.

This means that they are still cheap even with their massive performance so far this year and their huge current dividend yields.

All are perfect to keep your portfolio paying you and to rebuild your retirement income. And when the pundits once again begin calling for the end of munis... just change the channel and watch the cash keep tumbling into your brokerage account.

Disclosures: Long AFB, BLE, MMU, MUI and NQU

Source: Muni Bonds: Good Returns in 2009 and Still a Great Buy