The Muni Market Turmoil Continues: What's Going on and How to Respond
by Annette Thau
There have been a number of very bad years in the municipal bond market. But 2008 is in a league of its own—without any doubt, the worst year ever in the municipal bond market.
Last April, I wrote an article about steep declines in the muni market during the second half of February 2008 [“Turmoil in the Marketplace: What’s Going on With Munis?,” May 2008 AAII Journal; available at AAII.com]. The market subsequently rallied somewhat, but remained depressed.
In this article
- The Credit Crisis and Munis
- Why Are Munis Declining?
- Performance of Mutual Funds
- Closed-End Funds
- Exchange-Traded Funds
- Where Do We Go From Here?
- What Should Investors Do?
- One Final Caution
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A much steeper decline began in September, and as I write this (the second week of December), there is no end in sight. The declines taking place are unprecedented: particularly for bonds with long maturities and/or weaker credit quality.
This article will describe what has been taking place in the muni market. It will also briefly attempt to answer a number of questions:
- What lies behind the current declines?
- Are the current prices a buying opportunity?
- For the risk averse, where you can find safety?
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