Muni Bond Funds Look Attractive Compared to Treasuries

After the U.S. shutdown scare, municipal bonds fell behind the rally in Treasuries. As a result, the widening yield ratio could now signal a buying opportunity for muni bond funds.

Municipalities saw an increase in borrowing, which drove local bonds to the cheapest in almost two months against Treasuries, with yields on 10-year munis reaching about 111 percent of that on federal debt securities this week, reports Brian Chappatta for Bloomberg.

The $3.7 trillion muni market has generated a 0.1% return this month, compared to 0.6% for Treasuries.

“Given the elevated muni-Treasury yield ratios and a large increase in supply, this presents itself as an opportunity for the municipal investor,” Gary Pollack, head of fixed income for the Deutsche Bank unit, said in the article.

Source:  Tom Lydon and Max Chen, ETF Trends

The D2 Capital Management Tax Free Income Portfolio yields 3.36% (as of 24 October 2013) and the tax-equivalent yield is 4.689% (28% Federal Tax Bracket).  MarketVectors High Yield Muni Fund (HYD) is a component of the D2 Capital Management Multi-Asset Income Portfolio and HYD currently yields 5.73% for a 7.95% tax-equivalent yield (28% tax bracket).

The information contained in this article does not constitute a recommendation, solicitation, or offer by D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.