Muni Bond News: A Comprehensive Guide to Investing

Muni bonds offer a unique opportunity for investors to support local infrastructure projects while earning a relatively stable return.

Muni bonds are issued by local governments and other public entities to finance projects such as transportation, education, and healthcare.

The tax-exempt status of muni bonds is a major draw for investors, as it can significantly reduce their federal and state tax liability.

Investors can earn a yield of around 3-5% on muni bonds, depending on the credit rating and maturity date of the bond.

A strong credit rating is essential for muni bonds, as it directly affects the yield investors can expect to earn.

Municipal bonds are issued by nonprofit organizations, private-sector corporations, or public entities for public projects like constructing schools and hospitals.

They can be used to fund highways and other infrastructure projects.

Municipal bonds are also known as muni bonds or munis.

Muni bonds can generate tax-free income for qualified residents.

However, they pay lower coupon rates compared to taxable bonds.

As a result, muni bonds offer a trade-off between tax-free income and lower interest rates.

Muni bonds come in various forms, each with its own set of benefits and risks. A key distinction is between general obligation bonds and revenue bonds.

General obligation bonds are issued by governmental entities and not backed by revenue from a specific project. Some are backed by dedicated property taxes, while others are payable from general funds.

Revenue bonds, on the other hand, secure principal and interest payments through the issuer or via sales, fuel, hotel occupancy, or other taxes. This can also involve a third party covering interest and principal payments when a municipality is a conduit issuer of bonds.

Here are the main types of municipal bonds:

Municipal bonds are categorized into different types based on their source of income. A general obligation bond (GO) is issued by governmental entities and is not backed by revenue from a specific project.

Some general obligation bonds are backed by dedicated property taxes, while others are payable from general funds. This means that the municipality's general funds are used to make payments on the bond.

Revenue bonds, on the other hand, secure principal and interest payments through the issuer or via sales, fuel, hotel occupancy, or other taxes. This can provide a more stable source of income for the bondholder.

Here's a breakdown of the two main types of municipal bonds:

When investing in bonds, understanding the term lengths available is crucial to making informed decisions. Municipal bonds are available in a variety of terms ranging from two to 30 years.

The shorter term lengths of two to five years can provide a relatively stable source of income with lower risk.

For those willing to take on slightly more risk, municipal bonds with terms between five and 10 years may offer higher yields.

Municipal bonds with longer terms, such as 20 to 30 years, can provide a more substantial return on investment, but also come with increased risk.

The muni bond market is a stable investment option with low default rates.

Municipal bonds offer a unique combination of low interest rates and tax-exempt status, making them an attractive investment for those looking for a secure return on their capital.

According to the Securities Industry and Financial Markets Association, municipal bonds have a low default rate, which is a major benefit for investors.

Tax-free municipal bonds can yield 70% as much as US Treasury bonds, although this is lower than the historical average.

Municipal yields also compare favorably with investment grade bonds, offering around 55% of the average investment grade bond's yield.

The value of municipal bonds outstanding as of Q4 2023 is $4.1 trillion.

The municipal bond market has been bolstered by healthy demand dynamics, partly due to its many tax advantages.

Average credit ratings from S&P, Moody’s, and Fitch contribute to the exceptional creditworthiness of the municipal bond market.

This exceptional creditworthiness, coupled with the present outlook on taxation, suggests that municipals offer an attractive opportunity for those investors looking to lock-in tax-exempt yields.

Here's a comparison of municipal yields with other fixed income investments:

Note: These figures are based on current market conditions and may change over time.

Municipal bonds offer stability for your capital with low default rates, and interest from munis is generally exempt from federal taxes, making it an attractive investment.

The current environment is favorable for investors to add some exposure to municipal bonds, with attractive yields meeting low default risk. Investors may have a compelling opportunity to achieve their financial goals with less risk.

Taxable equivalent yield (TEY) measures what an investor would have to earn on a taxable investment to match the yield of a tax-free municipal bond. For high tax states like New York and California, A-rated municipal bonds offer taxable-equivalent yields (TEYs) of nearly 7.0%.

Munis offer more relative value to bonds with similar risks, shining relative to similar, lower-risk fixed income investments, such as US Treasuries and investment grade bonds. Currently, tax-free municipal bonds yield 70% as much as (federally taxable) UST bonds.

The yield to worst (YTW) on the Bloomberg Municipal Bond Index ended April 2024 at 3.78%, and muni bond interest is typically exempt from federal income taxes, so the tax-equivalent yield for a muni bond yielding 3.78% is a significant advantage.

Here's a comparison of muni bond yields to other fixed income investments:

We believe that compelling relative value dynamics, coupled with the present outlook on taxation, suggest that municipals offer an attractive opportunity for those investors looking to lock-in tax-exempt yields within an asset class of exceptional creditworthiness.

Risks of municipal bonds exist, but default risk is low compared to corporate bonds. Revenue bonds are more vulnerable to changes in consumer tastes or economic downturns than general obligation (GO) bonds.

A municipal bond's market price fluctuates with changes in interest rates. When interest rates rise, bond prices decline, and when interest rates decline, bond prices rise. This is because municipal bonds are a type of fixed-income security.

A bond with a longer maturity is more susceptible to interest rate changes than a bond with a shorter maturity. This means that investors with bonds that mature in the future may face even greater changes in their income. Fortunately, the majority of municipal bonds are illiquid, so investors can't easily sell them to get cash quickly.

Municipal bonds often carry call provisions, allowing the issuer to redeem the bond prior to the maturity date. This typically happens when interest rates drop, and the issuer reissues municipal bonds at a lower interest rate. When a bond is called, investors lose income from interest payments and face reinvesting in a bond with a lower return.

Here's a summary of the risks:

The current environment is a favorable one for investors to add some exposure to municipal bonds. With attractive yields meeting low default risk, investors may have a compelling opportunity to achieve their financial goals with less risk.

According to Bloomberg 10-year Municipal Bond Index, municipal bond yields are now exceeding those of cash and rivaling fixed income investments of higher risk. In high tax states like New York and California, A-rated municipal bonds offer taxable-equivalent yields (TEYs) of nearly 7.0%.

The taxable equivalent yield (TEY) measures what an investor would have to earn (yield) on a taxable investment to match the yield of the tax-free municipal bond. This assumes a federal tax rate of 37% and Medicare surcharge on investment income of 3.8%.

Tax-free municipal bonds yield 70% as much as (federally taxable) UST bonds, which is lower than the historical average. This comparative strength has been supported by the healthy demand dynamics bolstered by the market's many tax-advantages.

Municipal yields also compare favorably with investment grade bonds, offering ~55% of the average investment grade bond's yield. This is a significant advantage for investors looking to lock-in tax-exempt yields within an asset class of exceptional creditworthiness.

Here's a comparison of the yields:

The current fixed income yields are attractive, with the 10-year U.S. Treasury (UST) yield expected to fall to 3.9% over the next 10 to 15 years, down from about 4.4% today. This outlook suggests that municipal yields will follow, making now a good time to consider municipal bonds.

We believe that the present outlook on taxation, coupled with the compelling relative value dynamics, suggests that municipals offer an attractive opportunity for those investors looking to lock-in tax-exempt yields.

The municipal bond market has been making headlines lately, and for good reason. The yield curve steepened during the third quarter, making it an attractive time to invest in municipal bonds.

Investors are looking to high yield municipals to drive additional yield and total return due to strong fundamentals and after-tax yields. This is especially true for investors in high tax states like New York and California, where A-rated municipal bonds offer taxable-equivalent yields of nearly 7.0%.

Municipal bonds have been performing well, with favorable near-term valuations making them an attractive entry point for long-term investors. The Fed's rate cuts are expected to continue, which should benefit municipal bonds even more.

The municipal bond market is well-positioned to begin the fourth quarter, with supply expected to ease and demand strengthening. This is due to continued reinvestment demand from another Fed rate cut, combined with slower issuance.

Here are some key statistics to keep in mind:

Municipal credit fundamentals remain strong, with funds from federal pandemic aid and healthy tax collections strengthening balance sheets. Fiscal restraint should help keep most credits in a resilient position.

Consider investing in municipal bonds with a short-term focus, as they tend to be less volatile and offer relatively stable returns, like the 1-3 year tax-exempt muni bond offerings that have seen minimal price fluctuations.

For a more aggressive approach, you can diversify your portfolio by investing in muni bonds with a mix of short-term and long-term options, such as the 5-10 year tax-exempt muni bonds that have historically provided higher returns.

Investors with a long-term perspective may also consider tax-exempt muni bonds with a maturity date of 10-20 years, which have shown steady growth over the years.

Investing in municipal bonds requires a minimum investment amount, which can be a barrier for some investors. Most municipal bonds are issued in $5,000 increments.

This can be a significant hurdle for those who want to diversify their portfolio with municipal bonds. However, there is a way around this - some municipal bonds may be included in exchange-traded funds (ETFs) or mutual funds, allowing investors to purchase bond fractions.

Taxable municipal bonds can be a high-yield opportunity to de-risk portfolios, offering a way to balance risk and return.

Issued by states and local governments, taxable municipal bonds provide a way to invest in infrastructure and public projects.

One of the biggest draws to the municipal bond market is their tax-free status, but taxable municipal bonds can offer a higher yield to compensate for the lack of tax benefits.

Municipal bonds are issued by states and local governments to finance public projects and infrastructure, making them a stable and secure investment option.

Taxable municipal bonds can be used to de-risk a portfolio by adding a stable and income-generating asset class, reducing overall portfolio risk.

Federal Reserve Chairman Jerome Powell announced a major policy shift on August 27, stating that it would have significant implications for the municipal bond market.

In 2019, long-duration government bonds performed exceptionally well, making it one of the best years for fixed-income investors.

The August 27 announcement by Powell marked a turning point in the market, and investors should be prepared for potential changes in the months ahead.

The 2019 performance of long-duration government bonds was a notable exception to the overall market trends, offering a promising opportunity for investors.

High-Yield Bonds are a type of municipal bond that can offer attractive yields for investors.

For those interested in municipal bonds, the Municipal Bonds University section provides a wealth of information on how to get started with investing.

Investors can use the Municipal Bonds Screener to find high-yield bonds that fit their criteria.

By using the Trade History by CUSIP feature, investors can view the trading activity of specific bonds, such as the 196345BL5 bond.

The Daily Market Activity Report can provide valuable insights into the current market trends and activity.

Investors can also use the Municipal Bonds Trading Activity Screener to filter and compare different bonds.