Another Look at Munis

To find out more about investing in munis or any other kind of bonds, log on to InvestinginBonds.com. The site offers information on bond investing as well as price and yield data on corporate, Treasury, and municipal bonds, along with a real-time ticker for muni bond sales. You can also use the site’s calculator to see how a muni, with its tax-exempt feature, compares to a taxable bond.

The calculator takes into account that muni bonds issued in the state where you live are usually exempt from state income tax. An investor in New York City with a taxable income of $160,000, for example, would get a taxable-equivalent gain of 4.47% from a 3.0% New York State muni bond. In a no-income-tax state like New Hampshire, a 3.0% muni bond would have a tax-equivalent yield of 4.17%. With the stock market looking like it may stay underwater for months to come and in view of the puny yields that money market funds are paying, that kind of return on munis is looking pretty good.

Municipal bonds continue to be a relatively bright spot in an otherwise gloomy market. The current average yield on a 10-year, AAA-rated municipal bond is 2.94%, just a tad above the yield on the 10-year Treasury bond. But when you take into account a muni’s tax advantages, it’s even better. Even if interest rates go up, which would send yields down, taxes are likely to go up too, say muni-bond mavens, making a muni’s tax-exempt feature status more attractive.