The fiscal cliff negotiations have brought taxes to the forefront of people’s minds, and we want to update advisors on our thinking about the municipal bond asset class. Our take may well be different than what you’d expect based on the headlines.

At a high level, our current objectives for the bond portion of our tax-sensitive portfolios are the same as for our tax-exempt portfolios. We are trying to improve returns while not entirely trading off the modest risk-management benefit we get from high-quality core bonds. Muni bonds carry generally the same challenges and problems as their taxable counterparts. Yields are dismally low, but in a fear-driven market they would likely rally further to some extent along with Treasurys, so their role in providing ballast to a portfolio is similar to that of high-quality, core taxable bonds.

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