Investors hunting for yield are finding it in an unsuspected place: the municipal bond market, MarketWatch reports. A broader range of investors are becoming interested in the sector, which is also doing a better job of tackling its pension and retiree issues, it adds.
The national trade group representing U.S. bond dealers announced on Wednesday the formation of a coalition to defend the tax-exempt status of municipal bonds, a key trait of the $3.7 trillion market, Reuters reports.
“Municipal-bond funds in general are most suitable for use by investors in high annual tax brackets for use in their taxable accounts,” writes Morningstar ETF analyst Tim Strauts in a report on iShares S&P National AMT-Free Municipal Bond. “The reason is that interest income from municipal bonds is tax-free at the federal level. Therefore, investors with the highest marginal tax rates are able to best utilize the tax-shielding profits and maximize their return on the bonds.”
iShares S&P National AMT-Free Municipal Bond
Post updated to correct James Colby’s title. He is portfolio manager and senior municipal strategist at Market Vectors ETFs.