The Federal Reserve hiked rates. Municipal bond experts now see opportunities. They always see opportunities. Last week they saw opportunities when rates went down. Next week they'll see opportunities when rates stay flat.
Muni bonds pay you tax-free income to fund potholes in Cleveland and pension scandals in Illinois. The asset class exists because rich people hate paying taxes more than they love making money. Now the Fed changed a number and suddenly this boring corner of fixed income became exciting. To experts. Who get paid to say things are exciting.
The opportunity works like this: rates go up, bond prices go down, yields go up, you buy the dip, you collect your tax-free coupons, you die of boredom before maturity. But the experts frame it differently. They use words like attractive entry points and compelling valuations and favorable risk-adjusted returns. They mean the same bonds they ignored last month now cost less.
Retail traders will read this headline and think they found alpha. They'll open their Schwab app and search for muni bond ETFs and buy three shares of MUB and feel like Warren Buffett. Then they'll check the price every hour for a week and panic-sell when it drops forty cents because interest rates moved again and the same experts now see opportunities in corporate debt.
The beautiful part is the Fed will cut rates next year or hike them again or do nothing and the experts will still see opportunities. They saw opportunities in 2008. They saw opportunities in 2020. They'll see opportunities when the market crashes and when it rips and when it trades sideways for eighteen months. Opportunities are their product. Confidence is the margin.
You know who doesn't see opportunities in municipal bonds? People under forty who will never itemize deductions.
Photo by David Vives on Unsplash
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