Investing in the High Yield Municipal Market: How to Profit from the Current Municipal Credit Crisis and Earn Attractive Tax-Exempt Interest Income

High Yield Municipals versus Other Asset Classes

Before we dive into some of the basic principles of a successful tax-exempt high yield strategy, let us review how high yield municipals have performed as an asset class over the past decade or so.

Ignoring the risk side of the equation for now, the lower-grade sector of the municipal market has clearly fulfilled its yield mandate over the last few years. Figure 3.1 compares the monthly yield for Standard & Poor’s High Yield Municipal Index to its Investment Grade Index from January 1999 through July 2011.

FIGURE 3.1 Monthly Yield and Spread for S&P/Investortools High Yield and Investment Grade Indexes (January 1999 to July 2011)

Source: Copyright © 2011, Standard & Poor’s Financial Services LLC. Reproduction of the S&P Municipal Bond Indices in any form is prohibited except with the prior written permission of S&P. S&P does not guarantee the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions, regardless of the cause or for the results obtained from the use of such information. S&P DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. In no event will S&P be liable for any direct, indirect, special or consequential damages, costs, expenses, or losses in connection with the use of the S&P Municipal Bond Indices.

The Standard & Poor’s/Investortools Municipal ...