Pessimism or Not, Traders Will Find Opportunities in Municipal Bonds

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The problems in the muni bond market are giving some traders pause. On Thursday, Vanguard dropped plans for three new municipal bond funds. This comes right on the heels of JPMorgan Chase's Jamie Dimon warning of looming defaults.

Certainly, municipal bonds posted one of their worst performances in two decades in December. But given the importance and staying power of the muni bond market, reports of its death are greatly exaggerated, say many in the sector. According to Steve McLaughlin, executive director of Municipal Market Advisors, an independent strategy, research and advisory firm, muni bonds remain an essential part of asset allocation on Wall Street.

Of the $2.8 trillion municipal bond market, only about $47 million is in default, notes McLaughlin. Of the total muni bond market, half sits in safe sector bonds - things like water and sewer obligations. "The market will always be functioning and important to the industry," he says.

The Job Picture: Experience Wanted

While muni bond traders certainly aren't starving, they're generally not paid as much as the folks handling, say, exotic derivatives. But, says McLaughlin, "they're also not going to go anywhere." The current market demands experienced pros on the muni desk, he adds. "It is very much a sector for seasoned traders."

Plus, the market's tumult may be good news for traders' wallets. As state and municipal defaults shake out, the market's expected to be volatile for some time. Given today's market conditions, the smart firms are looking to snatch away the best and brightest - and they'll have to pay up to do it.

So what's on the horizon? News of a buy up of high quality bonds shows that even an influential doomsayer like Meredith Whitney can't stop the flow of money into the sector.

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