Will interest rates on municiapl bonds rise in the next 6 months? Why?

Question

I'm trying to learn more about various bonds, and i'm interested what factors affect municipal bond interest rates. I know that tax changes and credit risk are the two primary drivers, however, will anything affect these two factors over the next 6 months? Specifically, i'm researching District of Columbia munis. Thanks!

Answer 1

The primary drivers are credit risk, as you mentioned, and market interest rates.

To investigate DC bonds, contact your stock broker with a request for prospectuses on DC bonds that have a high degree of safety. Some are secured by good assets, some may be guaranteed by the US government. A prospectus is long but since it's your money at risk, it is important to read it. After you've looked through one or two, you will find it easier to review others.

Interest rates, no matter how smart a person is, are difficult to forecast, because they depend on future economic conditions and on other people's decisions. The best way to obtain a good current yield with low investment risk (by that I mean the risk that the price of the bond will go way down) is to choose medium-term bonds, 2-5 years. Forget about 30-year bonds, as too much can happen in that amount of time.

Best of success.

Answer 2

A good question. I do not know the answer. Here is what I do know. The economy is/was slowing which would indicate stable or declining interest rates. The drop in gasoline prices might have put that trend on hold. I do not have any personal experience with DC munis, but I can not imagine that they are very highly rated considering how screwed up DC government is.