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PIMCO's Old And New Bets: Should You Replace Treasuries With Munis?
Terrific article Michael.
Muni bonds are actually very cheap relative to treasuries currently (as of today, October 29th, 2012).
Munis historically have traded at a yield of approximately 85% of their comparable maturity treasury.
Today muni yields are HIGHER than treasury yields AND they are tax free!
The 30 year treasury is around 2.9% taxable compared to a new 30 year AAA rated state general obligation bond which is yielding around 3.5 - 3.75% tax free.
Munis departed from their traditional relationship with treasuries a few years ago around the time of the financial collapse. This was a result of the Fed's involvment in buying treasuries as well as the compounding of the difference by very large safe haven investors.
Muni bonds are great as a higher yielding safe haven for individuals, but not when you are looking for a home for $300 - $500 million at a clip.
Issues this size aren't readily available every day. And if you want to turn around and jump out real quick, good luck finding a bid on $500,000,000 in munis! Not many bidders at that level.
But there's plenty of bidders at the $50K and $100K levels. So it's really ideal for individual investors.
Check out the article I wrote on building the Ideal Municipal Bond Portfolio:
I strongly believe building your own individual bond portfolio is far better than buying a bond fund.
I'll write an article on that subject as soon as I have a chance...
Again, great article Michael. Keep 'em comin'!
Oct 29 01:29 PM
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