Displaying items by tag: munis

Investing in bonds has gained popularity, facilitated by platforms like Webull and Public. Bonds come in three main types: U.S. Treasury bonds, corporate bonds, and municipal bonds, each with distinct tax implications. 

U.S. Treasury bonds are state and local tax-exempt, corporate bonds are fully taxable, and municipal bonds often enjoy federal and state/local tax exemptions. Credit quality is vital, with investment-grade bonds rated BBB- or higher by S&P and Baa3 or higher by Moody’s. 

Comparing after-tax and taxable-equivalent yields helps investors decide the best options based on their tax brackets. Additionally, understanding the yield to maturity and coupon rates of bonds, such as those from can aid in making informed investment decisions

Finsum: Alternatively, ETFs and other products can make a wider exposure to bonds a little easier.

Bonds are generally lagging behind this year, with the Bloomberg U.S. Aggregate Bond Index down by 3% year-to-date as of April 2022. Municipal bonds are similarly affected, with the ICE AMT-Free US National Municipal Index showing a 1% decline since the year's start. However, pockets of strength exist within the municipal bond space, particularly in high-yield offerings like the VanEck High Yield Muni ETF (HYD), which has seen nearly a 1% increase year-to-date. 

Despite the higher risk associated with high-yield bonds, HYD maintains a balanced risk profile, with a significant portion of its portfolio allocated to investment-grade bonds. Offering a 30-day SEC yield of 4.49%, HYD presents an attractive option for investors seeking enhanced yield opportunities, particularly those comfortable with added risk and in higher tax brackets. 

Overall, high-yield munis could serve as a credible alternative to junk corporate bonds, especially considering their relative resilience amid rising interest rates and the potential for enhanced returns compared to traditional municipal bond funds.

Finsum: Munis market is capitalizing on the current environment and investors don’t want to miss out. 

Investors with over $250,000 are increasingly turning to separately managed accounts, allowing them to handpick municipal bonds with professional guidance. These accounts now hold $987 billion in assets, surpassing mutual funds, which hold about $769.7 billion.

This shift has significantly boosted business, with Franklin Templeton seeing a 50% increase in assets under management over the past year and a half. Lowering the minimum investment to $250,000 has made these accounts more accessible, though still beyond the reach of most Americans. 

However, advancements in technology are driving further accessibility, with potential for minimums to drop to $100,000 in the near future. With artificial intelligence breaking down barriers by making management for portfolio quicker to digest the minimums are bound to fall. 

Finsum: The SMA explosion is here to stay in the fixed income market and managers should watch the evolution. 

In today's interest rate climate, holding a significant cash reserve is a prudent strategy. While long-term investors may benefit from stock investments, individuals requiring immediate access to funds or building emergency savings find value in holding cash. With high-yield savings accounts offering rates of 5% or more, real returns on cash savings are attractive. However, for those seeking to optimize returns while maintaining liquidity, there are two fixed income ETFs that offer advantages. 

Two ETFs, iShares 0-3 Month Treasury Bond ETF (SGOV) and JPMorgan Ultra-Short Municipal Income ETF (JMST), offer different tax strategies to potentially enhance after-tax returns without significant additional risk.

Short-term Treasury bonds provide state tax exemption on interest earnings, making them appealing for residents of high-tax states, while municipal bonds offer federal tax exemption and may also be exempt from state and local taxes. Investors should assess the trade-offs between tax advantages and lower yields to determine the best fit for their financial situation.

Finsum; When accounting for tax advantages, fixed income ETFs could provide a more secure and efficient outlet for mitigating risk. 

In 2023, municipal bonds showed a recovery after a tough 2022, largely due to late-year rallies and shifts in Federal Reserve policy. However, the market has not fully rebounded, indicating ongoing opportunities in 2024. 

First, strong credit fundamentals are expected to persist, supported by substantial federal spending post-pandemic, leading to record tax receipts and rainy-day balances.

Next, strategically positioning across the yield curve offers chances to secure historically high yields, particularly in the long end, where steepening curves and higher yields prevail compared to U.S. Treasuries. Anticipated recovery in demand may see mutual fund inflows resume, especially for long-term funds and ETFs. Separately managed accounts (SMAs) are likely to remain popular among investors seeking customization and tax efficiency.

Finally, despite recent tactical investor decisions, municipal bonds continue to offer tax-free income, solid credit quality, and promising long-term returns, making them a strategic allocation option. Given current market conditions, entering the municipal bond market now may prove compelling for investors.

Finsum: Muni’s are leaving lots of options for investors on the table to tactically deploy in 2024.