A win for Democratic hopeful Joe Biden in the upcoming U.S. presidential election could be a boon for high yield bonds, according to a recent MarketWatch article. A so-called “blue wave” could have high yield bond investors seeing green.
“If Democrats take over the White House and Congress in November, it could turn into a boon for the worst-rated corporate bonds,” the article noted. “That’s the assessment from analysts at J.P. Morgan who worry the scanty yields sported by investment-grade corporate bonds leave them vulnerable to even a gradual climb in government bond yields, a potential risk as a Biden administration is likely to preside over an ambitious fiscal agenda. Bond prices move in the opposite direction of yields.”
“Believers in the blue wave should own high yield instead,” they said, in a Friday note, ahead of the upcoming November presidential election.
High Yield Exposure in Municipal Bonds
As leader of the free world, a Biden presidency could also bring higher taxes. While that might not be music to the ears of taxpayers, municipal bond investors might be listening to a sweet serenade.
“A Biden win would probably result in tax increases,” an Advisor Perspectives article posited. “The top personal income tax rate could increase from 37% to 39.6%, while the 3.8% Medicare surcharge on investment income for higher earners wouldn’t change.”
“These tax hikes would increase demand for municipal bonds, especially among wealthier earners,” the article added. “Higher demand could make munis more attractive relative to taxable bonds, which in turn would increase muni prices.”
As such opportunities in high yield municipal bonds are an option via funds like the VanEck Vectors High Yield Muni ETF (HYD). HYD seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Bloomberg Barclays Municipal Custom High Yield Composite Index.
The fund normally invests at least 80% of its total assets in securities that comprise the benchmark index. The index is comprised of publicly traded municipal bonds that cover the U.S. dollar denominated high yield long-term tax-exempt bond market.
Another fund to consider is the VanEck Vectors Short High-Yield Municipal Index ETF (SHYD). The fund seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Bloomberg Barclays Municipal High Yield Short Duration Index.
The fund normally invests at least 80% of its total assets in securities that comprise the benchmark index. The index is composed of publicly traded municipal bonds that cover the U.S. dollar-denominated high yield short-term tax-exempt bond market.
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