Colby is a Senior Municipal Strategist with more than 30 years of fixed income experience, responsible for Market Vectors municipal bond investments.
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.
Market Vectors High-Yield Municipal Index ETF
Market Vectors Intermediate Municipal Index ETF
Market Vectors Short High-Yield Municipal Index ETF
Market Vectors CEF Municipal Income ETF
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