DWS Investments: Munis look good as fiscal cliff nears; investors calm on California headlines

By Andrea Heisinger

New York, July 25 - Some municipal bonds are attractive investments at the moment and could prove to be a safe haven as a fiscal cliff looms at the end of the year, a source said at the DWS Investments press briefing on Wednesday.

Tax exempt municipals look attractive, said Phil Condon, managing director, chief fixed income strategist and head of DWS Investments Municipal Bond Department.

Historically, less yield is expected with these muni bonds, but now longer maturity bonds in the space are being used and are an attractive place to be.

The market's "not too impressed" with activities in California like the bankruptcies in San Bernardino and Stockton, Condon said.

"The market's gone through enough," he said. "People realize it is a credit market and there is a process. The market's not rallying that fast and that's why [muni bonds] are cheap."

Worries about the coming fiscal cliff at the end of 2012 could mean an increase in investing in municipal bonds, Condon said.

"If you're nervous, munis are still a good place to hide," he said. "If you're really worried, hide in munis."

The situation with municipalities going bankrupt in California shows the effect of expenses related to pensions and health care and isn't due to debt load, Condon said.

"California has less flexibility at the local level to deal with unions," he said. "They're looking at [bankruptcy] as a way to negotiate prices and the market is looking at it as an obligation. They are stressed, but it's not debt related."

Still, spreads in California municipal bonds have tightened, making them attractive over others from places like Illinois or Puerto Rico, he said.

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