Municipal bonds tend to be good investments for high-taxed investors, and these days the supply is ample. For that we can thank profligate legislatures and the cyclical downturn in tax revenues. But out of a misplaced aversion to risk, all too many investors, particularly institutions, are demanding the safety of insured munis. That's where the issuer takes out a policy that will make bondholders whole if there's a default. The insurance is not free. It cuts a slice out of your yield, In 1991, according to Thompson Financial Securities Data, 30% of all new issues with maturities of 13 months or more were insured. By last year that figure had leapt to 54%. Memories of the Washington Public Power Supply default of the 1980s and the Orange County, Calif. default of the mid-1990s combined with recent recession malaise to propel the rush to insure.
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