Displaying items by tag: munis

The municipal bond market experienced fluctuations in 2024, with tax-free yields rising in response to Treasury yield movements, particularly in the latter half of the year. Market uncertainty increased following the Federal Reserve’s December rate cut, which coincided with ongoing inflation concerns and economic crosscurrents. 

As 2025 begins, the potential extension of 2017 tax cuts under the new administration may impact demand for tax-free bonds, particularly if corporate tax rates are lowered. Climate-related risks, such as the LA fires and hurricanes, have drawn attention to municipal finance, with increased insurance costs and resilience measures potentially leading to more bond issuance. 

Despite these pressures, municipal credit quality remains stable, supported by strong reserves, prudent budget management, and infrastructure reinvestment. However, challenges persist in certain sectors, including healthcare, higher education, and public K-12 schools, due to shifting demographics, rising costs, and expiring pandemic aid.

Finsum: These are important things to monitor for municipal bonds, and the increasing role of DOGE, could drastically change this bond segment. 

President Donald Trump announced a massive private sector investment of up to $500 billion to develop artificial intelligence infrastructure in the U.S. The initiative, called Stargate, is a joint venture between OpenAI, SoftBank, and Oracle, with plans to build AI-focused data centers starting in Texas. 

Trump emphasized the importance of keeping AI development within the U.S. and pledged to facilitate the process through emergency declarations. While executives claimed the project would generate over 100,000 jobs, Elon Musk cast doubt on the funding, arguing that SoftBank had secured far less than stated. 

In response, OpenAI CEO Sam Altman dismissed Musk’s skepticism and invited him to visit a data center already under construction. Despite controversy, the investment signals a major push toward expanding AI capabilities and infrastructure within the country.

Finsum: This could be America’s next big infrastructure boom, and it could be key to outpacing the development of AI in China.

Municipal bonds, often overlooked, are gaining attention as fixed income performs strongly, prompting investors to reconsider their portfolios for 2025. Gregory Steier from Brown Brothers Harriman, highlighted that with elevated yields and record municipal issuance, risks are relatively low, making this an exciting time for munis. 

Steier emphasized that, for 2025, high-quality municipal portfolios might even outperform equities. Munis are attractive for their liquidity, income, diversification, and tax efficiency, with national muni bonds offering advantages over state-specific ones. 

Investors can access municipal exposure through ETFs like the ALPS Intermediate Municipal Bond ETF (MNBD), which focuses on bonds exempt from federal taxes, offering an active approach and strong returns, outperforming its benchmark. 

Finsum: This strategy could be a compelling option for those seeking solid yields to kick off the new year.

Municipal bonds have been essential to funding U.S. infrastructure projects, benefiting public facilities like hospitals, schools, and transportation systems through their tax-exempt status since 1913. 

With the upcoming expiration of the Tax Cuts and Jobs Act in 2025, the future of this tax exemption faces uncertainty as policymakers explore ways to manage budget deficits. Removing the exemption could significantly raise borrowing costs, hinder infrastructure investments, and place added financial strain on taxpayers. 

While alternatives like public-private partnerships and Build America Bonds exist, they present notable complexities and drawbacks. The preservation of tax exemptions for municipal bonds is critical to fostering local autonomy, stimulating economic growth, and maintaining cost-effective infrastructure funding. 

Finsum: Removing this protecting this framework could reduce sustainable development and support for communities across the nation.

Vanguard has produced two new actively managed municipal bond ETFs aimed at offering competitive tax-exempt income opportunities: the Vanguard Core Tax-Exempt Bond ETF and the Vanguard Short Duration Tax-Exempt Bond ETF. 

These funds target investors looking for diversified municipal bond exposure across credit qualities and regions, with the potential to exceed benchmark performance. Managed by experienced professionals, the Core ETF focuses on high-quality, longer-term bonds, while the Short Duration ETF emphasizes shorter-term bonds with minimal interest rate sensitivity. 

Both funds come with low expense ratios, setting them apart from similar offerings in the market. These launches expand Vanguard's active fixed-income lineup and complement its existing suite of index-based municipal bond funds.

Finsum: With a proven track record in bond fund management, these Vanguard options might work for investors looking to invest in munis.