Playlist: Municipal Bonds

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Open up to closed-end funds; many are looking cheap
Owen Thomas
23 April 2014 at 12:45 GMT
Video / 23 April 2014 at 12:45 GMT

Open up to closed-end funds; many are looking cheap

Owen Thomas
Investors willing to cope with a high level of volatility within their portfolios may look to invest in closed-end municipal bond funds. Many are trading at a premium discount, but the funds' average historical discount is what makes them a possible attractive investment at the moment.

According to Tim Strauts from Morningstar, discount rates for municipal bonds can fluctuate greatly, which is why using a Z-Score analysis to extrapolate historical trends helps to identify truly attractive discount rates. A Z-Score of -1 signals a buying opportunity, while a Z-Score of +1 indicates a selling opportunity. As of April 15th, closed-end municipal bonds hit a Z-Score of -1.2, which Strauts states has been a good point-of-entry based on historical trends.


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