Municipals are cheap relative to the rest of fixed-income on a tax-equivalent yield basis not just to those in high tax brackets, but for those on lower rungs as well, says Vanguard's municipal operations chief Chris Alwine. As opposed to the rest of fixed-income, munis tend to be dominated by individual investors, and hence are more prone to short-term volatility, he argues.
While muni investors tend to be homogenous, the market itself is very much heterogeneous and "shouldn't be brushed with broad strokes." - is Meredith Whitney listening? There are about $3.7T in assets, with more than 95K issuers, and a majority of the market is AA-rated. In other words, according to Alwine, Detroit is an outlier, not a game-changer.