High muni issuance despite soaring interest rates! Weimar Republic vibes?

Municipal Bonds and Yields:
- Municipal bonds (often called “munis”) are debt securities issued by states, local governments, or other public entities. They serve as a crucial financing tool for infrastructure projects, schools, hospitals, and other public needs.
- The yield on municipal bonds has become more attractive recently due to rising interest rates. Investors can earn compelling returns on munis, especially when considering tax advantages.
- If you pay high enough income taxes, avoiding them through tax-exempt municipal bonds can be worthwhile. These bonds offer interest that is exempt from federal income taxes, and for residents of the state where they are issued, the interest may also be exempt from city income taxes ¹.
Recent Trends:
- As cities invest in local infrastructure, state and local bond sales are expected to reach approximately $400 billion in 2024, representing a 7% increase from 2023 ².
- High-yield munis have seen their yields rise from around 3% in 2021 to 5.6% today. While this increase is significant, it remains only slightly above the average yield over the past decade ³.
Risk Considerations:
- While munis offer attractive yields, investors should be aware of risks. These include the possibility of default (though rare for investment-grade-rated municipal bonds) and fluctuations in bond prices due to interest rate changes.
- Sticking with investment-grade-rated securities can help mitigate default risk.