Municipal bonds may offer generous tax-exempt yields but investors need to be cautious. Defaults reached $7.6 billion in 2008; the current recession continues to put pressure on states’ and cities’ finances. Investors should look carefully into a municipal bond before buying.
However, avoiding municipal bonds that might default is challenging. The muni market is huge and many bonds are rarely traded so getting reliable information has been difficult.
Fortunately, investors can do their own research on the Electronic Municipal Market Access website, at www.emma.com. This site, which is free to everyone, has information on 1.3 million bonds from 50,000 issuers. For each of those bonds, you can see:
* The official statement. This is the lengthy document published when the bond was first issued.
* Continuing disclosure. Besides annual reports, any signs of possible trouble must be revealed to the public by bond issuers. Such information is critical now because municipal bond insurance may be uncertain.
* Trading activity. You can see when each bond was bought and sold, going back to January 31, 2005. The trading prices are revealed, along with the yields to purchasers at the time of sale. This data can help you determine whether your broker is offering you a municipal bond at a fair price.
