Thanks to strong technicals, the municipal market is having a great year. If the economy and interest rates end the year near today’s levels, we expect the positive trends to continue.

Island living is often likened to paradise, but on the distressed shores of Puerto Rico, the island is anything but carefree. Treading on the heels of the largest default in municipal bond history, investors are left asking, “where’s the money?

James Dearborn, head of municipal bond investments and senior portfolio manager at Columbia Threadneedle, discusses today’s muni bond market and where he sees opportunities for tax-sensitive investors.

Municipal bond market volatility in early '15 may have investors wondering if they should sell today and lock in their gains from 2014. After 13 consecutive months of positive returns, the muni market turned negative in February and the first two weeks of March as interest rates rose. After such a long and strong run, it is not surprising that the muni market has taken a step backward. That said, we do not see reason to panic and continue to believe that the muni market remains on sound footing due to supportive market fundamentals and technicals, as well as our entrenched high tax environment

Although we have no exposure to Stockton, California debt, we thought it would be useful to comment on the citys financial plight in the wake of the recent bankruptcy court ruling allowing the city to file a plan of adjustment or the equivalent of Chapter 11 reorganization. We, and other municipal bond participants, will be watching this process closely to see how the court treats various creditors.