No Easy Money in Muni Bonds

Jason Zweig is usually a surly and negative financial commentator.   I can’t recall the last time one of his columns said much positive about any financial marketplace.  This week is no exception as he takes aim at Muni  bonds, which many of our clients considering Secondary Market Annuities also hold.

I guess his position makes sense for someone  going IN to Munis in this marketplace… yields are so low that you must plan on holding to maturity (at 1-2%…), as any uptick in rates will result in a loss of principal.

But for those holding good munis with an attractive yield not threatened by maturity or a call provision, just hold tight.

This may sound  funny coming from someone selling financial products that compete with Munis.  But the truth is, a good yield on a tax free asset is just worth keeping.  Without question.

But What About Secondary Market Annuities?

Now that said, some of our clients are invested in Munis that have good yields, but the bonds are coming due, or are callable.  For those situations, Secondary Market Annuities are a great  alternative or re position investment.

Take a Muni yielding 5% tax free- it might have been issued 5 or 10 years ago, and if you  hold such a gem, you bought it a long time ago.  Your friends though you were weird settling for such a super low return then…. but you look like a genius now as it’s that’s a GREAT  tax free yield.

But then say your bonds mature in 2013.  You know you have liquidation coming soon, and you have to replace the investment.  What can compete?

We have clients in this exact situation… and they are choosing Secondary Market Annuities with yields in the 5-6% range.

They are replacing the yield on their Muni portfolio, selling their bonds that have short maturities, and re positioning in the best way they can find now.

And I think it’s a great strategy.


Read Mr Zweig’s dour assessment of Munis here if you want.  As with most of his work, he’s negative and arrogant at the same time, but does make some good points.

Written By

Bryan Anderson

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