The climate for municipal bonds has been pretty good in 2009 as low interest rates for federal debt drove investors to chase yield-funding civic projects. Some are worried about a reversal, especially if the Federal Reserve starts to raise rates as inflation starts to show up at least on the year-over-year comparisons.
But "just because rates are low now doesn't necessarily mean they'll rise quickly, or soon," says Rob Williams, director of income planning at Charles Schwab ( SCHW - news - people )Whether or not interest rates go up is something we won't know until Ben Bernanke sings. But taxes are going back to pre-Bush levels as the Democratic Congress plans to let the Bush tax cuts expire next year. As municipal bonds are (mostly) tax-free investments, says Bill Walsh, president of the asset management firm Hennion & Walsh, "Rising taxes at either the state or federal level would boost the appeal … as could potentially a repeal of the 15% rate on equity dividends," Williams says.
Of course there is that whole muni-bond scandal thing:
But there could be some credibility issues for municipal bonds, says Bill Singer, shareholder at Stark & Stark law firm. There was a nine-count indictment filed at the end of October against Beverly Hills firm Rubin/Chambers, Dunhill Insurance Services Inc., also known as CDR Financial Products Inc. The indictment is for allegedly participating in "bid-rigging and fraud conspiracies related to contracts for the investment of municipal bond proceeds and other related municipal finance contracts," according to a press release from the Department of Justice.
Because this is a criminal case pursuant to a grand jury indictment, "that tends to raise the stakes and may well prompt as yet un-indicted individuals to come forward with offers or cooperation and further leads," Singer says. He says this has the "potential to further gridlock an already limping industry."
0 comments:
Post a Comment