Investors aren’t just hoarding stocks when it comes to infrastructure recovery after the trillion dollar bill is signed; municipal bonds are also experiencing increased demand.
US President Joe Biden enacted the bill on Monday, putting pen to paper after it was successfully passed by the House of Representatives. Over the past two weeks, investors have crowded into municipalities in hopes that the infrastructure bill will demand debt from local governments to fund future projects.
âMunicipal bond prices have risen over the past two weeks as investors give up hope of a wave of new bonds from Congress’s $ 1 trillion. investment in American infrastructures â, the wall street journal reports. “The yield on a 10-year tax-exempt triple-A bond has fallen 8% since October 28, according to ICE Data services. Bond yields fall as prices rise.
The WSJ The report noted that in the long run, “any investment in roads, sewers and trains is generally seen as good for the market because it helps boost municipal credit.” In addition, the trillion-dollar package could stimulate a record issuance of municipal bonds, as some projects will not get all of the funding needed for some projects, leaving the local government to foot the bill.
âIn many cases, the local contribution will come from municipal bonds,â said Patrick Brett, head of municipal debt capital markets at Citigroup and Chairman of the City Securities Regulatory Council.
Investors looking to gain exposure to municipal bonds in a AND F can watch the Vanguard’s tax-exempt bond AND F (VTEB ). With an expense ratio of 0.06%, the fund offers low cost exposure to municipal debt.
VTEB follows 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 U.S. federal income tax and federal alternative minimum tax (AMT).
âThe fund uses an index investment approach designed to track the Standard & Poor’s National Index AMT-Free Municipal Bond Index using sampling technique to closely match key benchmark characteristics, âsays the Vanguard product page. “All of the fund’s investments will be selected through the sampling process, and at least 80% of the fund’s assets will be invested in securities held in the index.”
For more news, information and strategy visit the Fixed Income channel.