Anyone who remembers the collapse of Lehman Brothers Holdings Inc. little more than five years ago knows what a global financial disaster is. A U.S. government default, just weeks away if Congress fails to raise the debt ceiling as it now threatens to do, will be an economic calamity like none the world has ever seen.
Barely a year ago, the municipal bond market was tarred as a horrible investment. The expiring taxable Build America Bonds program had triggered an uptick in new issues that created a supply glut, bond rates were on the rise and analyst Meredith Whitney told "60 Minutes" that defaults would amount to "hundreds of billions of dollars." From October 2010 through January 2011, municipal bond funds saw net outflows of more than $33 billion, while a benchmark municipal bond index fell nearly 5 percent.
Higher risk assets are back in demand as investors turn their attention to the sudden prospect of Federal Reserve stimulus extending into 2014 after a government shutdown did more to damage the reputations of lawmakers than to fixed-income securities.