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3 Ways to Play the Muni Bond Rebound

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. The opinions expressed are those of the author and do not represent the views of TheStreet or its management.

By Alexander Green , Investment U's Chief Investment Strategist

NEW YORK ( InvestmentU ) -- Let's assume you agree that the selloff in municipal bonds is overdone and they're due for a rebound. How do you play it?

You have three primary choices...

1. Buy a low-cost municipal bond fund.
2. Invest in a closed-end bond fund.
3. Buy individual tax-free bonds.

Let's take the last one first. If you buy individual bonds, you'll see their price fluctuate. But if you hang on -- and there's no default -- you're guaranteed of receiving $1,000 per bond at maturity.

Thirty-year AAA and insured tax-free bonds are currently yielding 5.1%. If you're in the 35% tax bracket, you'd have to earn almost 8% taxable to receive that kind of after-tax return. Not bad.

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