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

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Buy American!

With interest rates coming off record low levels, investors are more tempted than ever to “reach for yield.” Short of another massive deflationary event, investment returns in the municipal market over the next leg of the economic cycle will likely be driven by credit selection rather than by a further decline in rates. However, as seen throughout this book, there is a right way and a wrong way to reach for yield. The “right” way is to be aware of historical risk factors and to maintain a solid relative value perspective at all times. The “wrong” way is to always chase the highest yield available and give up all of your liquidity in the process.

At the end of the day, the beauty of the current high yield municipal market lies in the fact that, for the first time in decades, investors can earn attractive tax-exempt income by investing in our own American cities and towns, instead of going out on a limb for some ill-conceived private purpose project. In these days of global political and economic turmoil, the U.S. municipal market still stands out for its relative stability. Yes, state and local governments are still going through a wrenching transition, and yes, local politics is always short-sighted, but all the fiscal issues are now on the table and will have to be addressed, sooner or later. Even if someone could still make the preposterous comparison between Greece and the state of California, wouldn’t you still want to invest in California? The answer should be ...

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