Municipal Bond Forum
Decline in muni supply would lead to lower yields, higher prices
Q
“Clearly, with BABs reducing the supply of tax-free munis while higher tax brackets heighten demand, it is not difficult to predict that investors buying high quality tax-free bonds yielding 5.00% or more today will be very pleased they did.” Seems to me the reverse is true: Diminished supply of tax exempts and increased demand for them will lead to higher prices and lower yields for muni investors. BABs are a disaster for tax-free investors. It’s the classic example that causes inflation – too much money chasing too few goods.
A
James A. Klotz responds:
We happen to agree with you.
We believe that a declining supply of tax-free bonds will lead to lower yields and higher prices, as you suggest.
This is why we think investors buying bonds yielding 5.00% today will be glad they did as yields trend lower.
Start here.
Do you have specific criteria for bonds you’re looking for? Let us know and we’ll e-mail you bonds that fit your needs. There is no charge for this service.
The responses provided in this forum are meant to address specific questions posed by investors about their municipal bonds and to provide market insight for our general audience. Please note, your investments, objectives, results and experience may differ significantly. Our answers and any potential strategies discussed should not be construed as a solicitation to buy nor sell any security or investment product. All investing entails risk.