Municipal bonds are a great way for investors to grab some tax-advantaged income, they'll just have to be nimble, according to BlackRock. The income earned on muni bonds are free of federal taxes, so the assets are typically favored by wealthy investors. In addition, if the investor resides in the state where the bond is issued, they may also avoid state taxes.
Taxable equivalent yields on munis, which is what the pretax yield a taxable bond would have to generate to match that of a tax-free muni bond, reach over 6%, explained Sean Carney, head of municipal strategy at BlackRock and chief investment officer of the firm's municipal bond funds. "Municipal bonds offer investors high after-tax income with less volatility compared to other fixed income assets and remain a good diversifier to equity and equity-like risk," Carney said. In a May note, BlackRock said value was being restored to the sector after the market had gotten ahead of itself in late 2023.
In June, munis started to tick back up, with the the S & P Municipal Bond Index seeing a total return of 1.8% month to date, bringing the total return to 0.37% year to date.
Issuance has also remained robust, the firm said. "There are opportunities," Carney said. "You just need to be more nimble.
" The firm has an up-in-quality bias in its portfolio. "That increases the liquidity profile, which is a nice option going into a period of increased unknowns," he said, pointing to the elections, upcoming Federal Reserve meetings and .
