The Tax-Exempt Bond Opportunity

Tax-exempt bonds crashed earlier in 2013. First there was all the talk of the Fed reducing its bond buying, known as tapering. Then, there was the bankruptcy of Detroit. I said in Retirement Watch that the crash created opportunities and recommended a portfolio position to capture them. Now, James Tisch, CEO of Loewe’s, said he agrees. He thinks tax-exempt bonds are worth considering now by almost all investors because prices declined so much.

Tax-exempt revenue bonds rated AA and maturing in 30 years yield about 4.6 percent, according to data compiled by Bloomberg. The interest rate is up from as little as 3.04 percent in January. The $3.7 trillion municipal market has lost about 2.4 percent this year, according to Standard & Poor’s data.

Loews’s insurance subsidiary CNA Financial Corp. (CNA) said in July that it was buying state and local-government debt for its $46 billion investment portfolio. The strategy was a reversal for Tisch, who said earlier this year that interest rates were so low that bonds were competing in an “ugly contest.”