,"Municipal bonds have often been referred to as the 'sleeping giant' of the fixed income universe, but the sector is facing a turbulent 2020..."
Municipal bonds are a staple of many investment portfolios, especially for investors in higher tax brackets. The tax-exempt nature of muni bonds can result in attractive returns and offer investors the potential to shield more of their returns from Uncle Sam.
The pieces should fall into place for the municipal bond market this year, according to municipal market specialists. Munis should be poised to benefit from factors such as an accommodative Federal Reserve, a strong economy, and a relatively low default rate.
However, investors should still be aware of some of the risks associated with muni bonds. All fixed income investment may be worth less than their original cost upon redemption or maturity. Additionally, muni bonds have become increasingly complex and the sector is facing a turbulent 2020.
To help investors better understand the opportunities available in the municipal bond market, Bear, Nick Peters-Golden and James Comtois have debated the investment case for municipal bonds. Nick Peters-Golden said: “Hi there James! Municipal bonds offer investors the potential of attractive returns with the added benefit of tax-free income. This makes them a desirable investment for those looking to shield their returns from Uncle Sam.”
James Comtois replied: “Yes, absolutely. US municipal (muni) bonds play an important role in funding public services and infrastructure, hence they are fundamentally well positioned for the long-term. In fact, use-of-proceeds bonds have been the most popular form of labelled environmental, social and governance US municipal bond issuance and this trend is likely to continue.”
Nick continued: “That’s true, however, investors should still be aware of the risks associated with muni bonds. MBNE’s focus on municipal debt can also allay some of the greenwashing concerns that accompany investing in ESG bonds, which are still young and developing.”
James added: “You make a great point. For investors looking to shield more of their returns from Uncle Sam, municipal bonds can offer an enticing alternative in a taxable account. Above all, investors should remember that all fixed income investment may be worth less than their original cost upon redemption or maturity.”
Nick concluded: “You’re absolutely right. As investors look to increase their fixed income allocations, one bond type to consider could be tax-free municipal bonds, with one core muni ETF being Municipal Bond National Exposure (MBNE).”
Municipal bonds have often been referred to as the 'sleeping giant' of the fixed income universe, but the sector is facing a turbulent 2020. Nevertheless, munis still remain an attractive option for those looking to shield their returns from Uncle Sam and receive the potential of attractive returns.
