3. Leave the heavy lifting to the pros. And by “heavy lifting,” I mean credit research. While overall creditworthiness is improving across the municipal landscape, and municipal bonds in general have had lower default rates than corporate bonds, no two issuers, credits, you name it, are exactly alike. You need to understand issuers’ ability to pay back debt, but also their willingness. This isn’t easily assessed, and there’s the potential for new precedents to arise out of cases such as Detroit. Professional eyes are priceless here, as a wrong move (particularly if you’re buying individual bonds) can make or break a muni portfolio. Our credit research team offers insight in their quarterly Municipal Credit Highlights.
Overall, municipal bonds continue to be a favorable fixed income option here at BlackRock, as noted in our Mid-Year Outlook. Munis remain a high-quality asset class offering yields that today rival those of Treasuries and many corporate bonds before tax — and look even better after. Caution is warranted after the market’s more than 6% gain through July, but in our estimation, that does not diminish munis’ appeal.
Peter Hayes, Managing Director, is head of BlackRock’s Municipal Bonds Group and a regular contributor to The Blog. You can find more of his posts here.
Sources: BlackRock, S&P Municipal Bond Index
