RJK

Why It's Time for Muni Bonds

You're probably right that the yields make munis a pretty good bet but you are complete remiss not mentioning the risk in munis in this current environment. There is no way munis will continue their historically low default rate in the coming years. These local governments are largely dependent on property tax revenue and the decrease in home values and foreclosures will (and already are) create huge budget shortfalls. Many local governments are already in serious financial peril the the number will continue grow for quite a while to come. I expect a rash of defaults on munis.

Bond traders realize this and this risk is why munis are yielding at a premium. As to whether the higher yields are worth the risk? That is a more complicated question, but it certainly isn't a clear-cut as you make it out to be.