High yield bonds, or junk bonds, are the obvious cause of the positive returns on bonds during the strong economic recovery of 2021. This is a category that has always been known to piggyback on rapid growth and soaring oil prices.
But as always, tax exemption bonds are also green.
The 2021 numbers are not spectacular. For example, clutches in a wide range of local government indexes have increased by 0.5% to 1%. (Returns are until June 4th.)
Still, the prices of municipal bonds are not as sensitive to rising interest rates as government and corporate bonds. Prices will be fixed until interest rates rise significantly as there are fewer transactions and more local government bondholders will be held to maturity.
And now there is a perception that high-income investors are desperate for shelters and can easily buy tax exemption bonds because they need to raise their income tax significantly.
But the tax policy story is always a questionable explanation for the success of municipal bonds.
Many investors do not seem to want to pay taxes if it is an option. It doesn’t matter if their personal tax rates are low, if they live in tax havens, or if Congress puts them in a total of 50% of the state and provinces.
It also doesn’t matter if the tax exemption yield is unusually low compared to what you get from your taxable debt. Currently, triple A municipal bond yields are at record lows compared to 10-year government bonds. For some asset classes, this causes a burst of profit taking and rebalancing. Not here. Repeat: People. However. Hate. tax.
Kiplinger’s Personal Finance: Tax Exemption Trains Run | Business News
Source link Kiplinger’s Personal Finance: Tax Exemption Trains Run | Business News