Some Muni Bonds Appear Screaming Buys Here

Includes: ITM, MLN, MUB, PZA, SMB, TFI
by: David Merkel, CFA

I try in my writings to be low hype, so I avoid brash headlines. Every now and then, though, one has to pound the table. With muni bonds today, there are some screaming bargains out there, even if you can’t benefit from the tax deduction. When have we ever seen muni yields at significant premiums to taxable Treasury yields? I can’t think of such a time in my investment lifetime.

Should life insurance companies, which can’t fully benefit from the tax deduction buy here? Yes. Banks? Yes. Pension plans? Yes. Endowments? Yes. Pretend that they are taxable securities for a moment, and buy them on a spread basis. When the need for tax avoidance reappears, you will be more than rewarded.

For institutional investors, hedge with Treasuries or Swaps if you are worried about the long end of the yield curve rising. Beyond that, I would simply say, stay diversified, and make sure that the munis that you buy have an unshakable economic purpose behind them.

Related: Muni Bond ETFs and CEFs