Muni debt caution
When I look at the funding sources for muni debt I get worried
Let's use some common sense. You normally buy bonds for capital appreciation when yields are coming down because bond prices then go up. The other factor in the equation is: " Can the underlying debtor pay interest and principal payments when due".
Bond prices and in particular bond funds and ETFs have been enjoying price appreciation that have made them very attractive additions to your portfolios. I've been buying them too because the numbers have been positive.
Here are my concerns:
- Bond yields are about as low as they can get so the upside price appreciation seems to have peaked
- The newspapers are filled with news of cities, school boards, county and states in fiscal crisis.
- Unemployment and real estate foreclosures and defaults are at an all time high.
- Most municipalities and states depend on income taxes, sales taxes and property taxes to pay their debt obligations
My caution tells me to begin to lighten my portfolios of any public debt instruments at the slightest sign of weakness. Am I being overly cautious? I'd like your views, please comment and give me your feedback.
Disclosure: No positions in the stock mentioned at the time of publication
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