If there’s something negative to be said about muni bonds, I’ve heard it. And I’m still not buying this fear and loathing. Getty Images By Jeffrey R. Kosnett, Senior Editor August 1, 2019From Kiplinger’s Personal Finance As a 5.5% return through mid July confirms, America’s municipal bonds are built of titanium. This isn’t the first time I’ve said this. In previous columns, I have emphatically urged everyone to carry on holding and accumulating state and local bonds. And that’s despite overamplified warnings that have persisted since almost a decade ago, when an irresponsible but famous analyst wrongly prophesied a flood of defaults and bankruptcies.See Also: How Smart a Bond Investor Are You? Today’s prognostications aren’t as apocalyptic, but they are every bit as misguided. Let’s start with last year’s fulminations that high-bracket income tax cuts would render tax-free interest income less attractive. False. It turns out that people prefer to pay zero taxes on investment income rather than earning a few pennies more of after-tax interest. The knock on munis. Then came cries about a potential recession or rolling regional downturns, rising interest rates due to Federal Reserve credit tightening, and, finally, headline-making (but rare and isolated) tales of shaky state, county or city finances. Muni bears also assert that foreign and institutional buyers who don’t benefit from the tax exemption will bail, and therefore prices will plunge because the tax-exempt sector is relatively illiquid. They forget that the alternative for investors is to pay France, Germany and Japan to hold their money. All in all, if there’s something negative to be said or written about municipals, I guarantee I’ve heard it or read it. And I’m still not buying any of this fear and loathing. My main contention is that we have a uniquely American success story—investing in essential services and infrastructure and other hallmarks of our prosperity—that belies the arguments of these worrywarts. BlackRock municipals chief Peter Hayes characterizes the municipals market as one that pays double-A yields but whose credit is as solid as any triple-A sector. I’ll remind readers that Standard & Poor’s still rates the U.S. Treasury AA+ but confers AAA status on 15 states and countless local borrowers. Advertisement Top-rated states such as Maryland, Minnesota, North Carolina, Utah and Virginia can’t print money, but neither are they subject to government shutdowns and debt-ceiling breaches. Some states are facing heavy pension costs that appear ominous for bondholders, but the surging bond market doesn’t seem to care. So if you have tax-exempt bonds or bond funds, you’re fine with the income and they work for you tax-wise, don’t do anything. If you have idle cash and you’re looking to earn a little more, a short-term tax-exempt holding such as First Trust Ultra Short Duration Municipal ETF (symbol FUMB, $20, yield 1.3%) or JPMorgan Ultra-Short Municipal Income ETF (JMST, $50, 1.7%) should pay off. For medium-term and longer-term municipals, investing in managed funds with low expenses or owning bonds directly is also fine. Consider Fidelity Intermediate Municipal Income (FLTMX, 1.7%), a member of the Kiplinger 25 list of our favorite mutual funds. (Prices, returns and yields in this column are through July 12.) Compared with Treasuries, you’ll get paid more generously for assuming the longer maturities that are common with tax-exempts (because schools, bridges and the like are built to last 30 years or longer). If you live in a high-tax state, be sure to invest in a home-state fund or buy mostly local bonds as a shield from state and local taxation. Finally, for those looking for income and price gains, specialized tax-exempt closed-end funds curiously remain available at share prices below net asset value. One to consider is BNY Mellon Municipal Bond Infrastructure (DMB, $13, distribution rate 4.7%). BlackRock, Eaton Vance, Nuveen and Pimco also offer proven funds with good yields trading at or below NAV.