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Speaking of bond bubbles popping, in an interview with Bloomberg radio today, Bill Gross, said the Federal Reserve is not likely to raise interest rates for several years as employment continues to grow less than forecast (see unemployment report for today).
"The front end of the yield curve is the best segment for investors with the Fed on hold, Gross, said today in a radio interview on “Bloomberg Surveillance” with Tom Keene".
1 comments:
If true that interest rates will stay lower for a longer time period, it makes municpal bonds (munis) very attractive for those in the U.S.
However, one must use caution as many states, municipalities, etc. face horrendous budget squeezes and may have trouble meeting payments. Although muni default is very rare, some states, communities, are very overextended and may default.
So selection is critical as there are many munis that are completely funded or have municipalities that prudently planned and have ample funding resources. For example, some from financially sound areas have revenue bonds based on water & sewer revenue.
Some munis in this climate are paying more than Treasuries, while historically because of the tax advantage, they usually trade at @ 85% of Treasury yields.
Seamus
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