Riding on the optimism of passing the infrastructure package through the House of Representatives, investors piled into municipal bonds during the month of November.
“There’s been record demand for U.S. municipal bond funds in 2021, with an estimated $85.36 billion in net inflows through September, according to Refinitiv Lipper data,” CNBC reports. “While demand slid from August through October, investors poured back into muni bonds in November, despite Democrats’ stalled attempts to increase taxes on the wealthy.”
The interest in municipal bonds ramped up over the past couple of weeks before culminating in the trillion-dollar infrastructure package being signed into law. However, the package may have snubbed the municipal debt market, but it hasn’t stopped investors in their tracks just yet.
“The municipal market has largely been left out of the infrastructure package signed by President Biden Monday, as well as Democrats’ follow-up social-spending and climate proposal, disappointing investors looking to buy new bonds and local governments trying to manage their debt loads,” a Wall Street Journal report notes. “The package could still help strengthen city and state balance sheets, another possible reason for investor optimism.”
Getting Tax-Free Income With VTEB
Fixed income investors looking for the benefits of municipal bond exposure can find them with the Vanguard Tax-Exempt Bond ETF (VTEB). With a 0.06% expense ratio, the fund offers low-cost exposure to municipal debt.
VTEB tracks the Standard & Poor’s National AMT-Free Municipal Bond Index, which measures the performance of the investment-grade segment of the U.S. municipal bond market. This index includes municipal bonds from issuers that are primarily state or local governments or agencies whose interests are exempt from U.S. federal income taxes and the federal alternative minimum tax (AMT).
The fund employs an indexing investment approach designed to track the Standard & Poor’s National AMT-Free Municipal Bond Index using a sampling technique to closely match key benchmark characteristics. All of the fund’s investments will be selected through the sampling process, and at least 80% of the fund’s assets will be invested in securities held in the index.
“Investors who are looking for a fund that may provide federal tax-exempt income and can tolerate moderate price and income fluctuations may wish to consider this fund,” Vanguard notes on its product website.
For more news, information, and strategy, visit the Fixed Income Channel.