Impressed by High-Yield Municipal Bonds? I am.

2010 has been pretty volatile so far for most asset classes. Stocks and bond have traded all over the board and May was particularly ugly for global stocks and the corporate bond market. But one sector has held up really well: high-yield municipal bonds. I actually did a post on this a year ago and this space has been really interesting to follow since then. Prices for high-yield municipals fell off a cliff in late 2008 due to a liquidity crunch and heavy flight-to-quality trade. In May, during intense volatility, credit spreads on the benchmark high-yield corporate bond index widened by another 141 basis points to almost 7% above treasuries. However, the yield difference between investment-grade munis and high-yielding munis widened by only 2 bps to about 3.5%.

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Advice for Trading ETFs in Volatile Markets

It would be hard not to notice the recent surge in market volatility. As a firm believer in the low-cost, transparent nature of exchange-traded funds (ETFs), I wanted to provide some tips to my clients and readers about how to handle trading ETFs in this environment. I should note that large, popular ETF issues, particularly equity ETFs, can often be traded like blue-chip stocks without too much worry about volume, pricing, and liquidity. However, when it comes to new issues, obscure issues, or any ETF with low daily trading volume, it can save you money to do a little research and avoid throwing in blind market orders.

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