Despite rising rates, here’s a Muni Bond ETF to consider


With the threat of a tax hike looming in 2022, investment capital has poured into municipal bonds in 2021 despite the threat of rising interest rates.

With inflation skyrocketing, the Federal Reserve could increase rates aggressively this year. Essentially, this should push yields higher and bond prices lower, but munis don’t, some market experts say.

“Higher interest rates will bode well for the average investor in municipal bonds” noted Certified Financial Planner Jay Spector, Partner at Barton Spector Wealth Strategies in Scottsdale, Arizona. “They are potentially going to see higher coupon rates.”

2021 was already a strong year, and it will be another busy year in 2022 for municipal bonds with a record issuance. The projections come after the trillion-dollar infrastructure package was enacted last year, which should prompt more states and local governments to issue more bonds to fund infrastructure projects.

“Governments will want to incorporate their own priorities into federally funded projects, and assuming federal spending stabilizes or improves areas, this will encourage development and development brings municipal bonds,” said Matt Fabian, partner of Municipal Market Analytics. , which estimates that 2022 will see an issue of between $ 450 billion and $ 475 billion.

As mentioned, the demand for munis in 2021 was the expectation of a tax hike, especially since the trillion dollar plan would increase federal government spending. Municipal bonds offer tax advantages when it comes to fixed income alternatives.

“Munis gives you that counterbalance to possible inflationary tax rate hikes,” said Ian Weinberg, CFP and CEO of Family Wealth and Pension Management in Woodbury, New York.

Municipal bonds aren’t just for high net worth individuals, but for all investors looking for ways to minimize the tax burden.

“I absolutely think munis have a place in someone’s taxable wallet,” Spector added.

Obtain exposure to municipal bonds

One place to get exposure to tax-free municipal bonds is through an ETF wrapper with funds like the Vanguard Tax Exempt Bond ETF (VTEB). With an expense ratio of 0.06%, the fund offers low cost exposure to municipal debt.

VTEB tracks the Standard & Poor’s National AMT-Free Municipal Bond Index, which measures the performance of the investment grade segment of the US municipal bond market. This index includes municipal bonds of issuers that are primarily governments or state or local agencies whose interest is exempt from US federal income tax and Federal Alternative Minimum Tax (AMT).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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