Why Munis Are a Great Opportunity

Market turbulence has always pushed market participants seeking safer investment vehicles to bonds. This time, the trouble is that the bond market has seen dramatic demand, pushing yields low and making them unattractive. Stocks are obviously a no-go for risk averse investors, so the question is what does one invest in today?

For technical analysts, resist the urge to start charting. The heavy selling at the end of February was the result of technical factors while the underlying value of municipals are solid. For the first time ever, munis are consistently out-performing Treasury yields. Typically the yield ratio between munis to treasuries was about 85 bps, whereas recently we have seen this ratio rocket up to 125 bps.

So what caused the recent sell offs in particular?

Hedge funds and other somewhat sophisticated investors have been going long on long-term bonds and...