The muni market seems to be returning to normal after major outflows last summer, though several potential hot-button issues could still spook investors. We don’t think these represent major risks to market returns or properly positioned portfolios. (more…)
Recent negative news about Detroit’s bankruptcy and Illinois’s pension overhaul has raised fears about the poor financial health of many cities and states. And it’s shaken individual investors’ confidence in municipal bonds. Just how worried should investors be? Not very, in our opinion, as bond defaults remain very rare. In fact, we view recent events in Detroit and Illinois as positives for the market. (more…)
Stockton, California, made headlines last June when it filed for a Chapter 9 bankruptcy. Now, a federal judge has not only given his okay to proceed; he’s also thrown retiree pension benefits into the debate. The big question is whether these benefits can be cut. The outcome could be a groundbreaking decision that would encourage other municipalities to adopt this approach—particularly those with pension problems.
In the end, the American Taxpayer Relief Act did not eliminate the tax exemption for municipal bonds or modify it any way. In fact, the increase in the top marginal tax rate makes muni bonds more attractive versus taxable bonds. And the Medicare surtax on investment income, enacted in 2010 but effective in 2013, makes muni bonds more attractive still. (more…)