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Fund Spy

The Muni-Bond Technical Tango

Simmering credit worries are no match for muni investors' yield grab.


Municipal bankruptcies are hitting the headlines again, and much of the recent action is coming out of the Golden State. Stockton, Calif., filed for Chapter 9 bankruptcy protection on June 29, becoming the largest city and third largest municipality to declare bankruptcy. Small ski town Mammoth Lakes followed a week later, and the city of San Bernardino voted to file shortly after that.

A muni-market bankruptcy trifecta is a rare thing, and this news would have caused plenty of hand-wringing in late 2010, when bonds were selling off and default paranoia reached a fever pitch. But muni investors are shrugging it off this time around. In fact, they've gotten more comfortable with risk as the year has progressed, even as muni-bond yields have continued to grind lower. High-yield muni funds in particular have been in vogue lately, taking in nearly $4 billion during the past three months alone.

Miriam Sjoblom does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.