World of Finances

The municipal bond exchange traded fund market experienced a fair amount of turbulence on the heels of the Fed’s quantitative easing. Still, ratings firms believe that most municipalities will pull through.

Municipal bond-related investments have experienced high volatility in the past couple of weeks as a result of the high debt burden of states and municipalities and the Fed’s fiscal policy decisions, reports Andrea Tse for TheStreet. Muni bond funds saw outflows of around $2.37 billion in the week ending Jan. 12.

Additionally, Meredith Whitney, the U.S. financial analyst who accurately predicted the global credit crisis, also stated a few weeks back that over 100 American cities could go bankrupt and their issued bonds would default in 2011 as total debt of municipalities hit $2 trillion.

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Since I am expanding my portfolio to beyond just IRAs and 401ks, I will need to move my more tax-inefficient investments like bonds into those tax-deferred accounts. This way, I’ll put more of my stocks in a plain taxable account which is taxed at the more favorable long-term capital gains rates.

Fidelity is my Solo 401k provider, so I was looking through their bond offerings. Their only bond index funds are the Fidelity U.S. Bond Index Fund (FBIDX) and essentially a US Treasury bond index fund with different maturity lengths. Looking at FBIDX, its benchmark is the Barclays Capital U.S. Aggregate Bond Index. This index covers the all US bonds on the market that are investment grade and taxable, including Treasuries, corporate bonds, and mortgage-backed and asset-backed securities.

This is basically the same benchmark index as the Vanguard Total Bond Market Index fund (VBMFX), which follows the Barclays Capital U.S. Aggregate Float Adjusted Bond Index.

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