Getting maximum quality and yield in certain market environments may seem like balancing on a tightrope at times. However, municipal bonds these days are offering fixed income investors a healthy mix of both.
Municipal bonds are lauded for their tax-free income benefits, but when it comes to yield, fixed income investors can opt for other options if they want to take on a higher degree of credit risk. Municipal bond yields, however, have been attractive in recent times, but investors should take advantage of the opportunity window while it’s still open.
“We think municipal bonds’ currently high yields offer a chance for you to reach toward your financial goals with less risk than we have seen in 15 years—you may want to consider deploying some cash into this fixed income sector, or perhaps consider reallocating some of your fixed income,” JP Morgan said.
As mentioned, fixed income investors can obtain current yields without accepting more credit risk in, say, corporate or emerging market (EM) bonds. Munis these days strike a balance between getting safe haven Treasury notes and the yield of their corporate counterparts.
“The case for municipal bonds is also strong when you adjust for the risk. The municipal bond market has a history of extremely low defaults,” JP Morgan added. “Within the fixed income universe, municipals at current levels offer compelling relative value to comparable lower-risk bonds.”
One Fund for Municipal Bonds Exposure
If investors are sold on the idea of adding munis to their bond portfolio, it may appear daunting given the vast number of options available. They don’t have to fret when considering exchange traded funds (ETFs) that can provide all-encompassing muni exposure in one fund like the ALPS Intermediate Municipal Bond ETF (MNBD).
With its active management strategy inherent in the fund, MBND can offer easy ingress to this complex corner of the bond market. Active management puts the fund in the hands of experienced portfolio managers who know how to deftly navigate the municipal bond market.
Per its fund description, MBND seeks to actively achieve its investment objective by applying bottom-up fundamental analysis and investing in a long-term, tax-aware manner. The fund aims to actively implement the strategy by investing primarily in a diversified portfolio of investment-grade municipal bonds. As of 1/31/24, the ETF’s 30-day SEC yield is 3.34% (unsubsidized) and its trailing 12-month yield is 3.26% (as of February 14), with a 0.50% expense ratio.
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