SUSTAINABLE INCOME | MUNIS | APRIL 2015
Ratio of before-tax muni yields to corporate and treasury yields
In early 2015, valuations looked compelling among high-yield munis. Ratios are a useful measure of relative value — expressing in percentage terms the relative “size” of before-tax muni yields compared to similarly rated corporates or Treasuries.
Depending on an investor’s net tax burden, investment-grade munis have recently offered after-tax yields that are comparable to those of similarly rated corporate bonds. Meanwhile, muni yields have appeared especially attractive relative to Treasuries.
Despite a brisk start to the year, the pace of issuance is expected to slow in 2015, which should offer a measure of support to muni bond prices — even if Treasury yields rise meaningfully. And, compared to Treasuries, the value of munis have often held up relatively well around times of rising yields.
After a lengthy rally in the municipal market, prices for many types of bonds have risen substantially. But thorough credit research can continue to uncover long-term value among the universe of revenue bonds supporting essential projects, such as hospitals, toll roads and airports.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice.