There is no minimum investment required for advised clients. A fund's current expense ratio may be higher or lower than the figure shown.ģ Investor Shares available only. A muni bond fund with a yield of 2.79% and a duration of 6 years, would still provide a positive return for the next 12 months even if yields were to rise another 40 basis points across the curve.ĭuration is the weighted average time for an investor to receive coupon interest and principal payments that would potentially allow the investor to recoup the bond's price from its cash flows.ġ Figures as indicated by the Bloomberg Municipal Bond Index.Ģ As reported in each fund’s most recent prospectus. With yields as high as they are, municipal bond funds offer a buffer against yields rising even further. This would help diversify the risk of coming in too early or too late. Investors considering a new allocation to the muni sector, or those hoping for reentry after fleeing earlier this year, might consider a cost-averaging strategy. If markets calm around these levels, it could create a technical tailwind for municipal bond pricing as cash that left tax-exempt funds earlier in 2022 may return. While there is substantial uncertainty around Fed policy in 2023, longer term yields seem to be settling close to the Federal Reserve's long-run neutral rate of 2.5%. However, the bond market has already factored in an aggressive Fed rate-hiking campaign. Either of these potential events could lead to further price drops (and yield increases) in the near future. It is possible that the market will continue to price in more interest rate hikes and that outflows could continue. These arguments for an attractive yield in a healthy market are not meant as a timing signal, since there are risks with all investments. Such measures will likely safeguard municipal bond valuations relative to other credit sectors (like U.S. All of which means that credit conditions are better than they have been in years. Issuers have used some of the flood of finances to build up their rainy-day funds, which can be a cushion for meeting budgets even during recessionary or otherwise difficult conditions. State and local income tax revenues have risen at a velocity not seen in 20 years, easing near-term credit concerns. But in today's environment, municipal credit has been bolstered by federal fiscal stimulus provided directly both to municipalities as well as to end consumers.

Such conditions threaten downgrades or even defaults. Typically, a significant risk-off event is required to reach current yield levels, such as an economic recession. When Federal Reserve officials signaled their commitment to fighting inflation early this year, investors began pricing in some 11 to 13 quarter-point expected interest rate hikes through 2022, which upended the fixed income markets.

The municipal market, despite its idiosyncratic nature, is much influenced by U.S. For investors in higher-tax states like California and New York, taxable-equivalent yields of corresponding state indexes may be nearly 5.75% for CA, or higher for NY.ĭespite the negative returns it took to get here, higher municipal yields potentially can provide higher levels of tax-exempt income for years to come. With a AAA Muni yield/Treasury ratio of 97% at 30 years, tax-exempt debt is particularly attractive in the long end of the yield curve.ĭepending on an investor's state and federal income tax brackets and the particular investment, the investor's tax-equivalent municipal yield may be higher than 5%. In the past ten years, muni yields have only been higher 13% of the time within daily observations. 1 That presented attractive valuations both relative to other bond sectors and from a historical perspective. Nominal municipal bonds featured a yield to maturity of 2.79% as of July 31. Municipal bonds suffered a 6.58% loss from December 31, 2021, through July 31 of this year, 1 drawing the notice of investors accustomed to a low-volatility tax-exempt bond environment.īut in fixed income, what goes down in price must go up in yield.

The risk of price volatility persists, but a cost-averaging buying strategy can help to mitigate this risk.

These higher yields are available even as creditworthiness for municipal issuers is arguably stronger than it has been in recent years.

Municipal bonds now feature much improved yields (especially after adjusting for taxes) because of the negative returns they experienced in the first quarter of 2022.

California tax brackets 2021