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I am hoping someone can help explain exactly what is happening in the muni bond market right now. I have a good chunk of money stashed in some Vanguard muni bond funds as a "safe, conservative" tax-free investment (VWLTX, VWITX, VMLTX). They've just been hammered over the last 30 days - losing almost 5%. Is this all because of the issues with the monoline insurers? As of 8/31/08 (the latest data available) all of the funds held more than 90% in AA and AAA bonds. I have to assume that's not the case today? Is it time to bail on these bond funds or should I stick it out? It's one thing for my stocks to take a beating in this market, but I wasn't expecting it with the bonds.

I am thinking about moving the money over to the Vanguard tax-free MM fund (VMSXX) instead. Any thoughts?

I wish I had a better understanding of the bond market so I could make a more educated decision, but I simply don't. The muni's have always just been a safe place - that I didn't need to think much about - for extra cash.

Your words of wisdom are appreciated.
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