James Colby has more than 30 years of fixed income experience. Portfolio Manager of Municipal Bond ETFs at VanEck, he is known for his perspective on the U.S. municipal bond marketplace.
The $3.7 trillion municipal bond market resides largely in the domain of individual investors, whether through direct purchases or financial intermediaries. Monday was tax day — a day when investors can truly realize the benefits of municipal investments. Although returns have been subdued so far this year (0.93% for the Barclays Municipal Bond Index and 2.56% for the Barclays Municipal High Yield Bond Index1), those who invested in munis in 2012 were rewarded with strong performance (6.78% and 18.14% for the investment-grade and high-yield indexes, respectively). I believe the increase in the top income tax rate to 39.6% has created an additional benefit for income seekers who continue to commit to municipals. For those considering new allocations, however, there are some uncertainties, especially in the context of the latest budget proposal by the administration.
What you should know:
So while Congress debates, in my opinion, opportunity could present itself in the near term.
Munis Attractive at Ratios ≥ 100% of U.S. Treasuries2
Ratio of U.S. Treasuries to AAA munis. Source: Bloomberg as of 4/15/13.
1Returns as of 4/15/13. The Barclays Municipal Bond Index is considered representative of the broad market for investment-grade, tax-exempt bonds with a maturity of at least one year. The Barclays Municipal High Yield Bond Index is considered representative of the broad market for below investment-grade, tax-exempt bonds with a maturity of at least one year.
2The municipal to Treasury ratio is a comparison of the current yield of municipal bonds to U.S. Treasuries indicating whether municipal bonds offer attractive yields compared to Treasury yields. If the ratio is below 100%, municipal bonds are yielding less than Treasuries; if the ratio is above 100%, municipal bonds are yielding more than Treasuries.
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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 a fund. An index’s performance is not illustrative of a 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.
Diversification does not assure a profit or protect against loss.
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 a fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333. Please read the prospectus and summary prospectus carefully before investing.
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This website is published in the United States for residents of specified countries. Investors are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this website. Nothing on this website should be considered a solicitation to buy or an offer to sell shares of any investment in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction, nor is it intended as investment, tax, financial, or legal advice. Investors should seek such professional advice for their particular situation and jurisdiction.
Investing involves risk, including possible loss of principal. An investor should carefully consider investment objectives, risks, charges and expenses carefully before investing. This and other information can be found in the appropriate regulatory documents made available for a specified country as designated in this website.