Municipal bonds continue to experienced robust demand from U.S. investors as reliable source of yield, especially among taxable accounts due to the debt securities’ favorable tax-exempt status. Recently, Japanese investors have gobbled up U.S. munis as a way of generating income as Japan maintains negative interest rates.

“The tax exemption of municipal bond interest is a key draw for issuers. And while it may be deemed alterable, we don’t see it as dispensable. States and municipalities rely on municipal debt as a low-cost, efficient way to finance capital improvements and fund infrastructure. The federal government hurts itself if it impedes state and local ability to create jobs, sustain their economies and improve the quality of life for Americans. As such, we see the elimination of muni tax exemption as highly unlikely,” adds BlackRock.

The municipal market also comes with high quality and low volatility traits. The asset category has experienced lower volatility than other bond categories and tends to be less affected by Federal Reserve rate uncertainty than high-quality taxable investments, like Treasuries.

For more information on the munis market, visit our municipal bonds category.

Tom Lydon’s clients own shares of MUB.