Municipal bonds have come under selling pressure so far in December due to growing concerns that the government will start taxing muni interest in some form in order to help close the budget deficit. At their new, lower prices, are municipal bonds a buy? CBS MarketWatch took a look at the outlook for munis in 2013 (see the full article here, and came to several conclusions:
- Investors need to look beyond the headlines, since municipal bonds still offer attractive yields versus U.S. Treasuries.
- Even though certain municipal defaults made headlines in 2012, most state and local governments remain in good health.
- Investors are always better off making decisions based on their own goals and objectives, rather than the latest news.
In the near-term, investors should expect continued volatility due to the endlessly shifting news out of Washington regarding tax policy. Longer-term, however, municipal bonds can continue to serve their primary role as a source of tax-free income and possible portfolio diversification.