2. Lower Default Rates. Puerto Rican debt woes spread a dark cloud over higher yielding munis. Yet the default rate for higher yielding munis has been declining. Specifically, the default rate for the S&P Municipal Bond High Yield Index hit 1.5% in 2011. In 2013? The default rate fell to 0.8%. Less defaults combined with greater yield spreads equate to an enhanced risk-reward relationship.
More adventurous souls might even prefer Market Vectors High Yield Muni (HYD) to Market Vectors Intermediate Muni (ITM). The former boast a 30-day SEC yield near 5.75% and a taxable equivalent for the top marginal bracket of 9.5%. Compare that to a taxable intermediate Treasury bond offering like iShares 7-10 Year Treasury (IEF). Can its 2.4% of income offset the possibility of modest price depreciation? Even with the possibility of IEF’s price appreciating, HYD would likely benefit even more from price gains.