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Breaking from Moneynews.com Pimco's Gross: Buy Municipal Bonds and Do It Now Despite the poor shape of many government finances and default warnings from Wall Street rock stars, municipal debt is a good investment, and investors should buy now, says Bill Gross, co-head of Pimco, the world's largest bond fund. Municipals have lost 1.4 percent of their funds in the past three months, according to data from TrimTabs market research, while corporate bonds have reported a 2.5 percent gain. Fears have arisen that many municipalities might default on their debt. "Despite the risk there's always the reward function, and you can get 6.65 percent in New York City Build America bonds, and 7 percent-plus in California," Gross tells CNBC. "That's decent return relative to the admittedly higher risk these days." Gross recently invested $5 million in five municipal funds, two of which are in California. Fears that municipalities will default have buzzed the airwaves, as some in Washington want to cut off supplemental funding if cities and states don't rein in spending. That's not going to happen, says Gross. "They undoubtedly are dependent on some special legislation or some under-the-table benefits with Medicaid and with education programs going forward that the federal deficit will have to fund," Gross says. "Ultimately I think in 2011, I think we're going to see continued funding of the states." Famed Wall Street analysts Meredith Whitney recently told the CBS television news show "60 Minutes" that municipal bonds were the largest threat to U.S. economy. Others, like Gross, point out that not all municipalities are sinking ships. “My personal prediction is we’re in for a bumpy ride,” Morningstar’s Director of ETF Research Scott Burns tells Advisor One, but is quick to add "the ferocity of the selloff in light of no actual news was a mismatch." © Moneynews. All rights reserved. Editor's Note: