According to CNBC, municipal bonds are offering more attractive tax-exempt income opportunities as the Federal Reserve keeps raising interest rates and Treasury yields remain elevated, with the 10-year Treasury reaching 5% on Friday. The Bloomberg Municipal Bond Index is yielding about 4.3%, while Chris Gunster, head of fixed income at Fidelis Capital, said that translates to a 7.3% tax-equivalent yield for investors in the highest tax bracket. The iShares National Muni Bond ETF (MUB) has a 30-day SEC yield of 3.8% and an expense ratio of 0.05%.
Bank of America strategist Yingchen Li said the muni market is waiting for stability in Treasurys after the yield curve flattened sharply this week, and said the Fed's firmer stance plus Treasury buybacks of long bonds should support munis. The Treasury Department said last week it will buy back up to $6 billion in longer-term debt. Barclays also said it is adding exposure to municipals, with Mikhail Foux saying muni ratios have widened, index yields are near multi-year highs and investors should gradually add higher-quality names.