4 Drivers of Return in the Bond Market
January 14, 2020
The case for investing in municipal bonds
Catherine Stienstra, Head of Municipal Investments
The muni asset class is very stable, it's high-quality, and it offers extremely attractive taxable-equivalent yields.
Investors are looking for consistent reliable returns that offer tax-exempt income. And the municipal market is a highquality stable asset class that has low correlation to the equity market. There's a low default rate in our market relative to corporates and the tax-free income is very attractive, relative again to corporates.
I think investors are also surprised that municipal bonds can outperform in a rising interest rate environment, and that is key right now as we've been in this low absolute environment for so long.
The market is still very valuable for high net worth individuals, that tax rate went from 39% to 37%. So, there really wasn't much of a drop there. So, the demand for the municipal bond market is still very robust and valid for that tax-exempt income.
The views expressed are as of April 2018, may change as market or other conditions change and may differ from views expressed by other Columbia Management Investment Advisers, LLC (CMIA) associates or affiliates. Actual investments or investment decisions made by CMIA and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Since economic and market conditions change frequently, there can be no assurance that the trends described here will continue or that any forecasts are accurate.
There are risks associated with fixed-income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer term securities.
Income from tax-exempt municipal bonds or municipal bond funds may be subject to state and local taxes, and a portion of income may be subject to the federal and/or state alternative minimum tax for certain investors. Federal income tax rules will apply to any capital gains.
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