Fixed income

A more optimistic outlook for munis

May 23, 2022

What goes down must go up
Municipal tax-equivalent yields are relatively attractive (as of April 30, 2022)
The tax-equivalent yield in municipal bonds, which translated to the yield for an investor in the highest federal income tax bracket facing a Medicare income tax surcharge, was 5.37% as of April 30, 2022. That was higher than the yield of the next highest category, U.S. corporates, at 4.31%. It was also higher than the other major categories, U.S. MBS at 3.59%, U.S. Aggregate at 3.48%, Municipals at 3.18%, and 10-year U.S. Treasuries at 2.93%.
How the market turned
A fundamentally solid market
States' rainy-day funds as a percentage of general fund expenditures (50-state median, for fiscal years indicated)
States’ funds set aside for recessionary times or emergencies, called rainy-day funds, have increased in recent years as a percentage of general fund budgets. The 50-state median is 8.4% in fiscal 2020 and an estimated 8.1% in fiscal 2021.
National totals for state and local income taxes (in billions)
This line graph shows total state and local income tax collections in the United States from 1999 through 2021. The graph clearly shows an acceleration of income tax receipts for issuers of municipal bonds starting in 2020, nearing $600 billion for 2021.
Cost averaging in reentry
A better buffer
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