Mr. Purrington:

How would a recession tend to affect Municipal Bond funds?

Thank you

Mr. Purrington

Typically, when we are in a recession, stocks go down and typically when stocks go down, bonds go up.  You need to take interest rates into account too, and since the Fed in this recession has lowered interest rates, that tends to lead to an increase in muni values.

However, in the recent credit/financial crisis, the situation is more complicated by the status of muni bond insurers, many of whom insured mortgage-back assets and took heavy losses on those, and the freeze in the auction rate market, so I don't think the current situation is typical.

While I think it was a great time to get into muni bond funds this time last year when they were valued low, I think they are valued high right now and I think interest rates will be rising in 2009 so I don't think now is a good time to get into them.  As the stock market heats up over the next 2 years, muni bond funds will cool down and that is when it will be a good time to buy them IMO if you are in a higher tax bracket.