NEW YORK ( TheStreet) -- Buying a municipal bond is a trip back in time.
It's hard to get solid bid and ask information. The cost of buying or selling is high. The market is not very liquid. But if you focus on bonds in your own state, you can get a tax-free profit as part of a $4 trillion market whose prospects in the near term are good.
The most recent SEC report on the $4 trillion market is dated August, 2012.
Experts often predict disaster for municipal bonds, as in this recent Janney Research report, but with bond issuance at half its 10-year moving average and investors hungry for yield, those who've bought and held are sitting on fat capital gains for 2014.
Still, this is a market where financial disclosures are notoriously bad. Since the bonds rarely trade, price discovery is hard and there are lots of horror stories told around the investment campfire.
Detroit's bankruptcy is a favorite theme and municipal bond bears, even though default rates in 2013 across the industry came to 0.107%, compared with a corporate bond default rate of 2.1%
Thanks to the lack of liquidity most municipal bonds go straight into the portfolios of local investors looking for tax-free income, and stay there. Barely 1% of municipal bonds actually trade on the secondary market. You'll get more comparable sales data listing your house.
Brokers do offer bonds for sale.
Charles Schwab (SCHW), where I trade, currently has a collection of Atlanta bonds with 4% and 4.5% coupons, expiring in 2025 and rated A-, priced at about $105, for a yield of 3.88%. Put $1 million in retirement money into these puppies and a Buckhead matron can get almost $39,000 in tax-free income for the next 10 years. She might need a 6% pre-tax return to equal that.