The New York Times recently reported that although faced with a “triple whammy” after the November 2016 election, according to Terri Spath, chief investment officer at Sierra Investment Management, a lack of movement at the federal level has not had the expected effect on the muni bond funds market.
There’s been no tax reform, no infrastructure spending that would flood the market with supply and weigh down the price of existing muni bond funds and a softening on 10-year Treasury notes. These and other factors have shown muni bond momentum. The report noted that returns on muni bond funds are on par with returns on other funds, even before factoring in the tax breaks.
Also positive, the Trump Administration appears to be making good on its promise to preserve the muni bond tax exemption. Treasury Secretary Steven Mnuchin recently told the Senate Finance Committee support from the White House for the exemption is there.
Going forward, however, lowering tax rates would affect muni bond prices, and that has investors focused on shorter-term muni bonds. But Spath insisted higher-yielding muni funds are worth a look. After the company sold all its muni holdings in late 2016, it has moved back into the market this year.
High-yielding municipals are currently yielding roughly the same as high-yield corporate bonds, and that doesn’t make sense,” she said, noting that many investors are totally overlooking the tax benefit these securities provide.