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A particular saying I used to hear around the office of my first job
was, "let's throw it against the wall and see if it sticks", comparing
the testing of new ideas to the testing of properly cooked spaghetti. I
was reminded of this analogy as I read several recent articles with headlines like "Obama Seeks to Curb Muni Bond Tax Breaks, Again."
Sparing you the minutiae, the recent Obama 2013 budget plan repeats
much of what was originally in the hands of the "Super Committee" last
fall. The committee was charged with repairing the deficit, and its
guidelines included initiatives to reduce, if not completely repeal,
the tax benefits currently offered by municipal bonds.
Authored by James Colby
As I anticipate another season of "America's Favorite Pastime," I cannot help but feel that the past two months of strong performance for municipals will likely level out into a more traditional pattern, much like when reality meets expectations with spring baseball. I think demand-generated performance will very likely be met with an elevated supply of new muni bonds. This in turn may bring on a slew of news headlines that are likely to moderate the current environment of positive sentiment and, in my view, cause the muni market to correct. Watch my latest video: Muni Health Check 1Q'12 >>
Returns for municipal bonds YTD in 2012 represents third strongest start to a year since 1990 (2.31% YTD as of 1/31/2012)†. Investors are rushing back to municipals as evidenced by strong inflows of $6 billion in January. A combination of factors are boosting investor demand: a lower supply of muni bonds given the tepid new issuance calendar, and renewed acceptance of munis as a harbor of credit quality and liquidity. Also, persistent headlines on Europe’s troubles continue to pressure investors to seek safety in U.S. Treasuries, which in turn supports municipal bond returns.
Van Eck Associates Corporation does not provide tax, legal or accounting advice. Investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service.
Please note that MUNI NATIONs written by Jim Colby represent his opinions and these opinions may change at any time and from time to time. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Global. © 2014 Van Eck Securities Corporation. MUNI NATION is a trademark of Van Eck Associates Corporation.
All indices listed are unmanaged indices and do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.
Any discussion of specific securities mentioned in the commentary is neither an offer to sell nor a solicitation to buy these securities.
Municipal bonds are subject to risks related to litigation, legislation, political change, conditions in underlying sectors or in local business communities and economies, bankruptcy or other changes in the issuer’s financial condition, and/or the discontinuance of taxes supporting the project or assets or the inability to collect revenues for the project or from the assets. Bonds and bond funds will decrease in value as interest rates rise. Additional risks include credit, interest rate, call, reinvestment, tax, market and lease obligation risk. High-yield municipal bonds are subject to greater risk of loss of income and principal than higher-rated securities, and are likely to be more sensitive to adverse economic changes or individual municipal developments than those of higher-rated securities. Municipal bonds may be less liquid than taxable bonds.
The income generated from some types of municipal bonds may be subject to state and local taxes as well as to federal taxes on capital gains and may also be subject to alternative minimum tax.
Investing involves substantial risk and high volatility, including possible loss of principal. Bonds and bond funds will decrease in value as interest rates rise. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 888.MKT.VCTR | 888.658.8287. Please read the prospectus and summary prospectus carefully before investing.
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