Individuals Find Great Opportunities in Municipal Bonds
Fraser, Andrew, THE JOURNAL RECORD
NEW YORK -- As the bulls and bears wrestle each other on Wall Street, individual investors continue to seek out a safe place to park their money and watch the fight.
The recommendation among an increasing number of investment professionals these days: municipal bonds. For the first time since 1986, yields on municipal bonds are nearly as high as Treasury bonds. Factoring in tax advantages, some munis even have returns way above U.S. government securities, which include bonds, bills and notes. And yes, they're relatively safe, too.
Treasury securities are considered the safest investments in the world because they are backed by the full faith of the U.S. government. But a recent flurry of buying has driven yields to 30- year lows. That drop has helped increase the allure of munis, which are issued by local governments to raise money to build schools, highways, hospitals and other public projects. They're second in safety only to Treasury bonds. Walter Ehrenpreis, a New York investor who hasn't bought munis since the late 1980s, recently came back to the market with some extra money he had scraped together. He was trying to shore up his portfolio from the volatility in the stock market. "At this point I want more security," said Ehrenpreis, who lives in the New York City borough of Queens. "You can't keep riding horses forever. I feel good with munis getting decent returns and competitive with Treasuries -- plus the tax advantage." The attraction of municipal securities as an enticing opportunity for individuals in the current low-inflation, low-interest-rate environment hasn't been lost on financial companies. They've been tossing out an unusual slew of research reports on munis recently. Salomon Smith Barney, Merrill Lynch and Bank of New York are among those that have been making a case for munis, which are usually considered a mundane investment product for individual investors. "In our opinion, municipals remain extremely attractive," George Friedlander, a bond research strategist at Salomon Smith Barney, said in an October report called Five Compelling Reasons To Buy Municipal Bonds Now. There are the tax savings. Municipal bonds are untaxed by the federal government, and in some cases, by the states -- a good consideration for those in high tax-brackets or high-tax states. …