Many are wondering about the future of municipal bonds in today’s economic climate.  Investors are now asking whether they can rely upon their municipal bond portfolios as the backbone of their wealth and income.  Let’s look at the fault lines in the world of municipal debt and see where your portfolio lies.

By analogy, investors once relied upon dividend paying utilities as the major source of their retirement wealth preservation and income.  Many were caught unprepared for losses as the utility industry was deregulated and share prices plummeted as well as income.

Could this happen again? 

For decades, municipal bond buyers have replaced vigilance with unthinking reliance upon MBIA, AMBAC, FGIC and other bond insurers for the timely payment of principal and interest. 

On June 21st Moody’s cut their rating on MBIA and AMBAC from AAA to AA.  This lowered the prices of insured MUNI bonds in many portfolios due to the fact that AA is less desirable than AAA (which is the highest rating).  Between May 30th 2008 and June 30th 2008 the average 20 year AAA MUNI bond portfolio dropped 7.8%.

Now is the time to act:
Consider having a municipal bond specialist review your portfolio—we can make recommendations based upon many important criteria, including concerns about safety.  There is still an opportunity to enhance the credit-worthiness of your municipal portfolio and not rely on names like MBIA or AMBAC.  We will be happy to review these alternatives with you and provide you a written analysis of your portfolio’s true underlying credit risk and true yield to maturity based upon current market realities.