Bond yields tend to tank when everyone is moving into bonds (often Muni bonds) when the stock market or world conditions are volatile and unpredictable like the last 6 months or so. The drive towards bonds is often safer as long as those bonds are insured. Because with cities going bankrupt if your Muni bonds aren't insured with Treasuries or some other useful form of insurance you could lose not only your interest but also your principal. However, if you live in the same state as your Muni bonds you pay no taxes on any interest you receive either state or federal. So, this also needs to be calculated because not paying ANY taxes on your interest because you are being patriotic investing in your municipalities in your state is quite a draw for people to invest under some circumstances.
For example, during the Great Depression the most stable investment was then Municipal Bonds. However, because cities now sometimes go bankrupt and potentially might not pay up their debts, unless your bonds in that city are insured you might lose your investment and your interest in these times.
|Yahoo Finance (blog)||-|
Yahoo Finance Senior Columnist Michael Santoli says the flood of money into bonds is a global phenomenon and that as low as yields have fallen in the United States, they're still better than much of the world.
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