(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
Back in mid-May, I sold my holdings in MUB, the iShares S&P National Municipal Bond ET. I purchased MUB in December of last year because the big discount seemed to big to resist; I was also mimicking Bill Gross’s dive into munis at the time.
My reasons for selling seemed obvious enough to me at time as I attempted to balance risk versus reward: 1) the MUB shares had already gained more than their annual yield, and 2) imminent economic weakness (signaled by the bond market) would further damage state and local budgets and eventually send assets like MUB back to the bargain bin. Since then, MUB has gained another 3%. At a time when the stock market is at 11-month lows, MUB is reaching for 52-week highs. This strong performance is occurring even after S&P downgraded municipal debt to AA+ status (11,500 bonds reliant on federal spending).
So what happened?…
{snip}
…Just as Treasury bonds got more attractive as a “safe” bet after the S&P downgrade, it seems investors think of munis as relatively safe in a world of diminishing returns, limited options, and unattractive alternatives. I was certainly wrong MUB so early, but for the future it does seem right to buy MUB when the market offers steep discounts.
*Charts created using TeleChart
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
Full disclosure: no positions