Muni Yields Hit 4.3% as Fed Hikes Rates
The 10-year Treasury yield reached 5% on Friday. Municipal bond yields stand at 4.3%. Tax-exempt income now offers a competitive alternative to federal debt.
The 10-year US Treasury yield climbed to 5.00% on Friday. This move followed the Federal Reserve's latest interest rate decision. Municipal bond yields currently sit at 4.30%. The Bloomberg Municipal Bond Index reflects this level. Bond prices and yields move in opposite directions.
Tax-exempt status changes the calculation for investors. A 4.30% muni yield translates to a 7.30% tax-equivalent yield. This figure applies to holders in the highest federal tax bracket. Chris Gunster, head of fixed income at Fidelis Capital, cited this figure. He noted that comparable yields are unavailable in the Treasury market. He also stated that corporate bonds do not offer this tax advantage.
Tax Equivalent Yield Reaches 7.3%
The iShares National Muni Bond ETF tracks the investment-grade sector. Its 30-day SEC yield is 3.80%. The fund charges an expense ratio of 0.05%. These figures provide a baseline for market performance. Investors use these metrics to gauge entry points.
Yingchen Li, a strategist at Bank of America, expects stabilization in the Treasury market. He believes the Fed's firm stance will support municipal bonds. The Treasury Department plans to buy back up to $6.0 billion in long-term debt. This action aims to control yield levels. Barclays sees an opportunity despite challenging technical conditions.
Treasury Buybacks Support Market Stability
Mikhail Foux, head of municipal research at Barclays, advises adding exposure gradually. He recommends focusing on higher-quality names. Muni ratios have widened recently. Index yields are approaching multi-year highs. A more assertive Federal Reserve should help longer-term rates.
Tom Kozlik, head of municipal strategy at Hilltop Securities, urges immediate action. He advises against waiting for lower yields. He stated that current levels warrant full entry. Historical data supports this view. AAA-rated long-term yields have rarely reached these levels in 26 years.
Strategists Recommend Immediate Market Entry
Nathan Will, head of municipal credit research at Vanguard, notes strong issuer fundamentals. Many issuers have maintained strong reserves since the pandemic. They have learned to manage revenues and expenditures carefully. Infrastructure needs remain a key driver for issuance.
Bank of America favors AAA-rated bonds. The firm finds the entire yield curve attractive. The long end offers the best potential for outperformance. September issuance reached approximately $37.0 billion. This volume is 50% higher than the same period last year. New money issuance increased by 74% year over year.
