Lonestar1

Some Positives About Municipal Bond ETFs

Frankly, the muni market is just another subprime market to explode in 2009. The only positive is the possibility of bailout by Treasury or the Fed. The Treasury bailout would blur the political structure of the nation, while the Fed lacks the legal authority to step in. The Congress is trying to solve both issues in its proposed new bill.

Muni ETFs are way over priced, if you look at the underlying bonds. The bottom line is this: without bailout, defaults should be massive across board. At states level, mere reduction of work force (20% ?) or services, won't do it.

Deleveraging has and will continue to cause much more pain. In fact, theortically one can not deleverage a system which is so highly leveraged. Either more capital is found, or, asset prices have to come down to appropriate levels.

For munis, those 5% or 7% after tax yields are not attractive if defaults are a possibility. High yield market can offer high teens, and still have no buyers. I have heard some convertible bonds offer more than 50% yields, but nobody cares.