Home Substantial portion So far, it’s been a bad year for municipal bonds

So far, it’s been a bad year for municipal bonds


“Everyone expected state and local governments to suffer more from Covid than they did,” said Amanda Beck, an accounting professor at Georgia State University in Atlanta. “But they got a lot of federal relief money, and that made up for the revenue drops. Also, property values ​​have not fallen, so tax revenues have not fallen as much as expected. »

The higher yields mean that municipal bond funds and ETFs are generating better income than they have in some time.

“When you’re offering 2% yields, it’s no fun for anyone, and the market has been like that for a long time,” said Jim Murphy, municipal bond team leader and portfolio manager at T. Rowe. Price. “I haven’t seen great value in the market for a long time, but I think the market now, with higher rates, is healthy.”

By the end of June, T. Rowe Price’s oldest municipal bond fund, its tax-free income fund, was paying a 3% yield, down from 2.4% at the end of December. A fund that Mr. Murphy manages, a high-yield municipal offering that invests “a substantial portion of the assets” in junk bonds, was paying 3.4%.

Vanguard called the surge in municipal yields this spring a “renaissance of tax-exempt income.”

Paul Malloy, head of municipal investments at Vanguard, said rising yields should benefit patient investors over the long term.

“One of the things we frequently see in municipal markets is a herd effect and people are looking for yields going up and then down, saying, ‘Oh no, I better go. . This kind of market timing is something we constantly warn municipal investors about. »