Is It Safe To Buy California Munis?
In my last post, I mentioned that about California was running out of cash. Because of these concerns, yields on California Municipal Bonds are pretty high right now. But is it safe to buy them?
According to the Wall Street Journal, it would appear that it is. They asked the California state treasurer Bill Lockyer whether the California public debt was completely safe. “Absolutely, the only way we’re going to default is if there’s a thermonuclear war.”
David Blair, the head of municipal credit research at bond giant Pimco, agrees. “They clearly have the ability to pay,” he said. But he added that the main risk is headline risk, where bad news smacks prices.
The ten-year Treasurys currently yield about 2.5%. California’s bonds yield about 4.2%. And that’s also exempt from federal income tax.
According to Vanguard’s Mr. Smith, the gap between the two has never been so high. The picture is similar for municipals across the country. Panicked investors have dumped everything – and blindly jumped into Treasurys, driving yields down to incredibly low levels. Meanwhile munis are also under pressure because so many states and cities will have to borrow more.
So there’s no doubt that California will pay back the debt. In the worst case, the Federal Reserve would just bail the state out. If they’re willing to bail out car companies, I’m sure they’ll step in for California.
But if there’s more bad news, the yields could go higher still, and the prices of the bonds could fall in value.
If you found this post helpful, consider donating to my coffee fund!![[del.icio.us]](http://images.del.icio.us/static/img/delicious.small.gif){kind=small}
- Debt-free At What Cost? I know a couple who are completely debt-free. They're in their early to mid-thirties and have no mortgage, no car loans and no credit card debt. Pretty impressive.While they don't live unnecessarily frugally (no, they didn't eat noodles and boiled rice for a year) they have made some major decisions......
- Damn usary laws I was about to lend another investor $15k at 3% interest per month with a 6 month ballon or an extension with a 6% penalty but the escrow company told me that its against texas's usary laws!I spoke to a broker and he said there are ways around it but......
-
Gold Jumps: Has It Become Correlated To The Stock Market? I've been an avid collector of gold and silver coins and have been following the prices for a years. Gold is supposed to have a negative correlation with the stock market. This year has proved otherwise. Of course, as we've seen repeatedly in the past, all asset classes correlate to......
Related Websites
- Simple Energy Solutions That Save Big Money As energy prices go up, many people are looking to alternative power solutions in order to save money. However, converting an entire house to go off grid can be costly, and the work involved may be too much for some homeowners. That doesn't mean that you have to abandon the......
- Getting Rich While Paying Debt Off One of the wisest things that you can possibly do this year, if you are not already doing it, is to become debt free. Here is something that you may not currently be aware of: Gaining a control over your finances that you did not previously have could actually make......
- SunDrugstore document.write(''); Viagra (Generic) Product Name+ Price Buy Now Generic VIAGRA 100 mg x 100 Pills + Free 16 Pills $125.00 Generic VIAGRA 100 mg x 200 Pills + Free 20 Pills $310.00 $210.00 Generic VIAGRA 100 mg x 40 Pills + Free 12 Pills $62.00 Generic VIAGRA 100 mg......
[All content is copyright of Living Off Dividends & Passive Income]
January 17th, 2009 at 1:31 pm
Do you happen to own any bonds? If so, what are you getting for them?
It seems right now that interest rates are so low, there are not many places one can go to get a decent yield.
Maybe California is going to be the place to go again.
During the great depression that’s where people heading for work…now it’s the place to head for investments…
January 18th, 2009 at 4:06 pm
So, How much did you make in dividends for all of 2008?