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With all of the destruction of property and the repairs that will need to be done in the coming months. Is shortly after a large natural disaster a good time to buy a Muni bond ETF of some sort?

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I would say it would be a good time to run away of Muni bonds, if the muni is in NJ.... –  littleadv Nov 1 '12 at 17:33
    
You want to look for beneficiaries of the construction to come, not the victims. –  JoeTaxpayer Nov 1 '12 at 18:58
    
So, sell stock in insurance companies (whose profits are likely to be smaller or even negative because of the payouts) and buy stock in construction companies, lumber companies, flooring manufacturers, appliance manufacturers, etc and clean-up companies such as Servicemaster? –  Dilip Sarwate Nov 2 '12 at 12:01
    
@DilipSarwate - Chances are the losses are already in the current price of the stock. Most insurance companies knew what their potential liability was before the hurricane even came ashore. –  user4127 Nov 2 '12 at 13:55
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2 Answers

Municipal bonds are not very liquid and as such, municipal bond holders aren't in a rush to sell their bonds during natural disasters.

Therefore from that logic, there wouldn't be a discount on the bonds from any other day. Meaning, no it wouldn't be a better time just because a natural disaster occurred.

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It depends on what municipality is issuing the bonds.

Some municipalities are unable to pay the bills due to pension and healthcare obligations for government employees. These same governments would have trouble paying interest or principal back on a municipal bond since they can't pay the current bills.

Normally when a debtor declares bankruptcy bond holders are the first to be repaid. Not necessarily so with municipalities. When the city of Vallejo declared bankruptcy some bondholders got less than 5% of their original principal back. The bankruptcy judge, however, refused to let Vallejo rework their pension obligations. Pension obligations got put in front of bond holders.

If I were investing in municipal bonds I would research the municipality to understand its pension and retiree healthcare obligations. I would want to make sure my bond had a good chance of being repaid. This may be a good place to start such research.

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