Seeking safety, investors have flocked to Treasury bonds, but now investors are beginning to develop renewed respect for municipal bonds, which are not only tax-free but delivering higher yields, The Wall Street Journal reports.
The $2.7 trillion muni bond market is deeply depressed, said Merrill Lynch Municipal Strategist Philip J. Discher, noting that a Merrill index of long-term municipal bonds is down 14% year to date.
Investors in high tax brackets or in regions with high taxes would especially be well-served by investing in municipal bonds. Thirty-year municipal bonds are currently yielding 5.5%, well above the 4.2% yield on 30-year Treasuries. Combined with the tax break, an investor in the 35% tax bracket would be getting the equivalent of an 8.5% yield.