A decline in bond prices could mean this is a great opportunity to snap up tax-exempt municipal bonds.
Tax-exempt income and relative safety are on sale for investors who are sniffing around municipal bonds. Intensifying fears around a "higher for longer" interest rate policy from the Federal Reserve reached a fever pitch last week as Treasury yields spiked and a selloff in equities and bonds ensued. Even the safest corners of the bond market weren't spared: The iShares National Muni Bond ETF slumped to its lowest level since March 2020 on Oct. 6.
An analysis by New York Life Investments found that if a taxpayer in the 32% tax bracket picks up a muni with a tax-free yield of 5%, a taxable investment would have to yield 7.35% to provide comparable income. "Investors don't need to take the risk they needed to in the past to get attractive yield," said Cooper Howard, fixed income strategist at the Schwab Center for Financial Research. Munis can also bring a bit of tax complexity, as well.
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