Municipal bonds are often thought of as tax-exempt vehicles appropriate only for investors who fall into higher tax brackets. However, municipal bonds can offer potential advantages to investors of all income brackets. In this primer, we highlight several attributes that we believe make the municipal bond market a stand out among other large fixed income markets. These attributes include :
- Low refinancing risk. Municipal debt is typically self-amortizing where periodic debt service payments consist of both principal and interest. This structure enables repayment of principal with less reliance on future market access.
- High credit quality. These issues tend to be highly rated.
- Low default rates. Compared to other fixed income asset classes, municipal bonds have had low historical default rates.
- Diversification. These issues have had a low historical correlation with other major asset classes.
- Attractive yields. Municipal bond yields compare favorably to major fixed income segments, even exclusive of their tax advantage.
Source : Invesco Real Estate