Municipal Bond Forum
Munis Undervalued
Q
Do you foresee a municipal bond “bubble” developing as the race for after-tax yield accelerates, especially given the boomer retirement demographic starting to play out? In other words, are investors overlooking the risk to buy a good after-tax income flow?
A
James A. Klotz responds:
Bubbles occur when the price of an asset class is over-inflated due to excess demand for that particular asset.
A comparison of municipal bond yields with other fixed-income investments indicates that munis are actually undervalued.
The after-tax yield on tax-free bonds is higher than that of Treasury bonds and comparably rated corporate securities.
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