Municipal Bond Funds Hold Up

Tax-free funds invest in municipal bonds issued by state and local governments. The market is generally perceived to be a higher quality market, versus equivalently rated corporate bonds.

Lyle Fitterer of Strong Intermediate Muni Bond Fund, a top performer this year, antiocipates that the Federal Reserve will remain on hold till the end of the year as far as rates are concerned. He thinks there will continue to be tremendous interest in municipal bonds versus corporate bonds.

“With uncertainty in the stock market, and uncertainty in the corporate bond market, I think cash flows into the industry should stay strong,” he says. “At the same time supply, I think, is going to be very heavy.”

Though Fitterer says we are probably on pace for a record year in terms of issuance, he sees most of it getting absorbed by demand.