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Trading Municipal Bonds
Trading municipal bonds may sound like a contradiction in terms. After all people who earn a lot of buy municipal bonds to take advantage of the tax exemption. Thus municipal bonds are commonly a long term investment that people only get out of, at or shortly after retirement when their yearly income falls off. On the other hand trading profits commonly occur during times of volatility and when trading volatile equities. Here is where trading municipal bonds comes in today. Check out the news. The city of Detroit has gone bankrupt. The fallout has been far and wide as city after city has delayed or called off its municipal bond auctions. And the US Federal Reserve is planning to reduce the size of its weekly Treasury bond purchases which in turn is expected to raise interest rates. Thus there are two fundamental factors that are expected to drive interest rates and the values of municipal and other bonds. Technical analysis of prices may be useful in profiting from this apparent chaos in trading municipal bonds.
Trading Bonds When There Is Blood In The Street
A little over a year ago we wrote about trading Euro Zone bonds. The point of trading bonds instead of investing in them is to profit from widely fluctuating interest rates no matter what the cause. Higher rates in the Euro Zone last year were because of the risk of default by several nations across the Southern flank of Europe. Likewise in trading municipal bonds today higher rates go with the risk of default by cities. In addition, the Fed bond buying stimulus program was meant to drive interest rates down and stimulate economic growth, which was successful. Now the Fed is looking to taper off and there is the likelihood of higher interest rates across the board. Although the Fed promises to go at this slowly markets are still unsettled. This is a variant of Baron Rothschild’s blood in the streets saying. (The best time to invest is when there is blood in the streets, especially your own.) To make money on bonds in a rising market the best choice is to wait until rates rise unless you are selling in anticipation of a rise. However, in a volatile market rates may go up and down and a savvy trader could make money buying at the top of a swing and selling at the bottom in trading municipal bonds.
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