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
Copyright © 2014 Microsoft. All rights reserved.
The idea of US crude being a shelter from turmoil abroad may not be as far fetched as it seems.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.