A Case for Tax-Exempt Bonds

There was a big sell off in tax-exempt bonds during the May-June panic. They took a harder hit than many other bonds, and the recent bankruptcy of Detroit didn’t help matters. Seeing the lower values, I recommending buy some tax-exempts in the August issue of Retirement Watch. Here’s another explanation of why this is a good move for value investors who want some income now.

The bottom line is that the true AAA tax-free US municipal bond scale now offers bonds at yields that are higher than the corresponding Treasury bond. This is true at maturities throughout the yield curve, from the short end of 2 years to the long end of 30 years and at every stage in between.

We reiterate our conclusion of yesterday. We continue to favor the high-quality tax-free municipal bond. We think such bonds are cheap. We also note that the overall credit mix of state and local government is improving. That happens when the economic recovery progresses.