Nuveen
The biggest player in high-yield muni funds is Chicago-based Nuveen, which has more than quintupled the amount of high-yield municipal debt it holds in funds to about $27 billion since 2010, according to Morningstar data through June. Nuveen’s clout has also led to concerns about its influence.
What is the major benefit of holding municipal bonds?
Overview of Municipal Bonds For an investor, one of the major advantages of munis is that they are typically exempt from federal income tax. These debt securities are often excused from local and state tax as well, particularly when the bond’s investor lives in the state in which the bond was issued.
What’s the best way to invest in municipal bonds?
Municipal bonds are also relatively liquid, but investors need to be careful of the bid-ask spread. A bid-ask spread of just 1% can substantially reduce the returns of a muni bond yielding 2%. One solution is to invest in a municipal bond mutual fund, but you must be sure the fund is no load.
Do you pay federal income tax on municipal bonds?
Most munis are exempt from federal taxes. If you invest in a specific-purpose municipal bond, then it is also likely to be alternative minimum tax ( AMT) free. When you invest in a local municipal bond, it will usually be exempt from your state’s income taxes too.
Which is better a muni bond or a corporate bond?
Another advantage that munis have over corporate bonds is a much lower rate of default. According to Moody’s, the annual municipal bond default rate was about 0.03% between 2009 and 2014. 3 In the long run, the corporate bond default rate is about 2.5% per year. 2
What is the default rate on municipal bonds?
According to Moody’s, the annual municipal bond default rate was about 0.03% between 2009 and 2014. In the long run, the corporate bond default rate is about 1.5% per year. Financial gurus Warren Buffett and Meredith Whitney predicted catastrophe in the municipal bond market, but those predictions had not come true as of 2019.
