With the fiscal cliff looming over America and potential tax hikes across the board, Bill Gross, the manager behind the PIMCO Total Return Fund, believes tax-free municipal bonds are an attractive option. Investors can gain access to the muni bond securities through the exchange traded fund investment vehicle.
If the government does not reach an accord by the end of the year, $607 billion in automatic spending cuts and tax increases will take affect starting January, reports Michelle Kaske for Bloomberg. [Muni Bond ETFs Solid on Tax Fears, Rock-Bottom Yields]
“Muni bonds, which are tax-free, would be a valuable type of asset going forward,” Gross, said in the article.
“Most assets are bubbly. Municipal bonds much less so due to potential tax changes,” Gross said in a recent twitter message.
The PIMCO Total Return ETF (NYSEArca: BOND) has 9% of its weighting allocated to municipals. BOND has a 2.53% 30-day SEC yield.
Currently, munis are providing attractive yields relative to Treasuries. The 10-year munis have offered higher yields than Treasuries over the last year, whereas muni yields have typically been at 93% of federal yields on average since 2001 – investors would accept the lower yields due to the tax-exempt status on municipal bonds. [Muni Bond ETFs Hit on Tax Worries]