With volatility and concerns that shook the municipal industry in 2007 — from Federal Reserve Board easings to deterioration in the subprime mortgage sector and its flow-on effects in the bond insurance market — retail investors are likely to be much more demanding and discriminating this year when it comes to the quality, yield, and structure of the bonds they add to their portfolio, according to several muni market specialists.

Despite ringing in the New Year with lower absolute rates and a steeper yield curve than a year ago, individual investors will be just as active in the market as they were in 2007 — but much more diligent in asking questions about a bond’s underlying quality than ever before in the wake of reviews of bond insurance company ratings. Retail investors — many of which are in a high income tax bracket and rely on municipal bonds to provide steady income and capital preservation — are expected to continue to seek shelter in the tax-exempt market amid continued volatility in other investment classes, sources said.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.