Tuesday, August 16, 2011

The Great Muni Bond Collapse -- That Never Happened

Above is a chart of the municipal bond market ETF. While the overall trend is up, there have been two periods of sharp declines. The first occurred at the end of 2008 when the economy hit the skids. The second occurred at the end of last year when money moved out of government bonds as well because there was hope the economy was picking up, thereby signalling to people that they move out of safe haven assets (government bonds) and into riskier assets (like equities). The point is that fears over an imminent muni bond collapse have been overblown for some time. Also note

That last week when the market tanked, munis caught some of the safety bid.

In short, the great muni bond collapse ... never happened.