Noted municipal bond expert Marilyn Cohen, CIO of Los Angeles’ Envision Capital, has blogged on Forbes.com that Pre-refunded Municipal bonds are a bargain right now. Pre-refunded Muni bonds are Tax free municipal bonds, escrowed and guaranteed with US Treasurys. Make sure they are escrowed with US Treasurys, not Fannie Maes, not Freddie Macs, not Guaranteed Investment Contracts–GICS. You can verify this by entering the bonds CUSIP number on MSRB.org
She states that pre-refunded municipal bonds maturing in April 2012 are yielding a solid 0.80%-0.85%, almost double what they were in the summer of 2010. This compares to a Vanguard tax-exempt money market yielding 0.13%. Think of this as more of a CD replacement than a longer term investment.
See our tutorial on How to buy municipal bonds, if you have never bought any, you are in for many surprises.