Are prefunded muni-bonds totally safe?

readytoretire answered one year ago …

The main question to ask to give an answer is what the pre-refunded bonds are in (they had to borrow the money from somewhere). If they are in treasuries, then the muni-bonds should be safe. Sometimes, they will use bank CDs or other instruments to get a higher interest rate, so there is some risk depending on the particular instrument. Similar is the use of insurance to guarantee payment. That only works if your insurance company stays in business. Once upon a time when munis had an excess of cash flow, a few did set up plans where they actually put cash up to cover the payments on older bonds. Don't know if any of those are still around.