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Today’s muni yields


Your recent article (“Municipal Bonds as Trade War Safe Haven?”), left out one very important fact – the lack of supply of creditworthy munis, at par, that have a respectable yield. I’ve seen bonds that a year ago were selling at a deep discount that are now selling at premiums reducing the yields. You’re putting a positive spin on munis despite the lack of availability, low yields, premium pricing and chasing yields maturing when we welcome the new century.

L.S., Texas


James A. Klotz responds:

I certainly can’t quarrel with your recollection of recent bond market history, but context is crucial.

We have been in a declining interest rate environment for 35 years that seems to be unrelenting.

As we learned from Dr. Einstein many years ago, “all things are relative,” particularly when it comes to the fixed-income markets.

Where are the attractive fixed-income alternatives?

The 30-year Treasury bond today is yielding 2.60% (taxable).

Quality corporate bond rates are yielding approximately 4.00%, which, after taxes in the maximum brackets, will net just about 2.00%.

Switzerland, Germany and other European industrial nations carry negative interest rates on their sovereign debt, as does Japan.

In this context, a 3.00% after-tax yield on munis looks pretty good, as the extraordinary demand by investors attests.

Jun 13, 2019

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