..Beyond that, he argues that with a Democrat potentially in the White House next year, "there's a high probability that personal tax rates will go up," making muni bonds more valuable. That realization could send these investments higher in price, he argues.
A number of hedge funds focusing on the muni-bond market have come under pressure, in part because they used borrowed money to make their bond purchases and now are under pressure from lenders to put up more collateral. That is forcing some to sell muni bonds to try to keep their firms afloat.
Mr. Ross says that Friday his firm bought up long-term muni bonds with an average annual interest rate of "well over" 5.5%, a yield that tops that of comparable Treasury securities, which aren't tax-free on a federal level. In normal times, muni bonds yield less than Treasurys because of their tax-free status.
Friday, Pimco purchased $1.5 billion of munis, and also has seen sharp gains. "These are values that probably won't come around for another generation, but they're here at the moment," Bill Gross, who runs the $123 billion Pimco Total Return Fund, said on Fox television Tuesday. "Yes, they're risky because the prices are moving at the moment down. But they're not un-credit-worthy."