Outside the Box: Muni bonds aren’t just for the wealthy and investors in states with high taxes

by | Jul 25, 2022 | Stock Market

It’s no secret that the first half of 2022 has been one of the toughest periods for fixed income investors dating back to the early 1990s. The combination of rising rates and higher inflation has prompted many investors to turn sour on bonds. Within fixed income, tax-exempt municipal bonds have been particularly hard hit with one of the fastest and steepest selloffs ever recorded. Yet municipal bonds have historically shown that they can reverse course quickly, unlike other pockets of the bond market. Just recently, we’ve seen more stability in the muni market, with investors starting to dip back in to take advantage of bargains. 

There are four main factors supporting munis, which should encourage investors to be more optimistic about these assets: 1. Rising rates: Munis have traditionally outperformed during the Federal Reserve’s rate-hiking cycles, because the yield curve flattens and tends to create better income and total return opportunities, especially for longer-duration bonds. 2. Seasonal tailwinds: Munis generally benefit from some seasonal tailwinds, unlike other parts of the fixed income market. Because most municipal bond investors largely fall in the retail and high-net-worth categories, they tend to pay higher tax bills. In order to pay some of these taxes and harvest tax losses, muni investors tend …

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