Municipal Bonds Are Back Out Of Favor

The tax situation is immediately obvious. If the tax cuts will continue into next year -- if not beyond -- then as tax-advantaged instruments, muni bonds become less appealing in a relatively low-tax environment.

But psychology is also an issue. As investors flee the prospect of higher default risk in the asset class, some are dumping munis indiscriminately. While the prospect of failure is in the air, it is unlikely that many of these quasi-government issues will be allowed to fail.

If muni bonds make sense for a client, then it may be in the advisor's best interests to express the situation in as detailed a faction as possibile.

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