Municipal Bond Forum
Soothsaying and the lost decade
Q
I read your article, “Time Flew, But Interest Rates Didn’t.” Six months later, do you still feel the same way? Interest rates have fallen and 5% is not available, not even on long-term (20-years-plus) bonds that are “AA” or better?
A
James A. Klotz responds:
As we said in the commentary to which you refer, “predicting the direction of interest rates is a futile and unrewarding exercise.”
Our opinion has not changed.
The thought that “interest rates have nowhere to go but up” is what caused investors to forego the income available from long- term municipal bonds and relegate themselves to a lost decade in the money market, waiting for rates to rise.
Yes, tax-free bond rates are lower today, but must be viewed in the light of 10-year Treasury bonds under 2.00% and 30-year Treasuries yielding approximately 3.00%. Tax-exempt bonds still offer excellent value in comparison to any of their fixed-income brethren.
We ignore history at our peril.
Start here.
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