News Analyst
Bond traders have been worried about “spread tightening” all year, meaning investors weren’t being rewarded much for taking on bonds that were riskier than U.S. Treasuries. But Steve McFee, a portfolio manager at Vanguard who focuses on municipal bonds, says fixed-income securities tied to local governments are more attractively priced than corporate credit, in addition to tax advantages. “[The corporate credit] The market was quicker to respond to an attractive fixed income environment. Our market has been a little slower. That’s why I say there’s a lot of meat left on the bone to invest in municipal credit,” McFee said. Vanguard launched two new municipal bond ETFs on Thursday to help investors seize this opportunity: a Core Tax-Exempt Bond ETF (VCRM), managed by McFee, and a Short-Duration Tax-Exempt Bond ETF (VSDM). Both funds will be actively managed and will have fees. management of 0.12% Sector Perspectives Municipal bond funds purchase and hold fixed income instruments issued by state and local governments or related entities. are often tax-exempt, what investors should keep in mind when comparing yield to other types of bond funds is the amount of pre-tax yield a taxable bond would need to generate to match. to the one of a municipal bond. An investor who is in the 32% income tax bracket and holds a muni bond with a tax-free yield of 3% would do so. need to find a taxable problem with a Yield of 4.41% in order to generate the same level of income. State and local governments have been considered a relatively safe investment since the Covid-19 pandemic, as federal aid and stimulus spending has helped shore up budgets across the country. Today, several years after the bulk of those programs were implemented, the industry still appears to be on solid footing, McFee said. “Muni’s fundamentals remain resilient. We’ve fallen a little bit from the peak fundamentally, where we saw stimulus flow through the economy during Covid, but we’re still very strong fundamentally,” he said. McFee also said he sees opportunities in BBB-rated municipal bonds. These issues are still considered investment grade by credit agencies, but are somewhat riskier compared to AAA-rated munis. Munis in 2024 Municipal bonds have been a hot area to invest in 2024. Over the past month, top index funds iShares National Muni Bond ETF (MUB) and Vanguard Tax-Exempt Bond ETF (VTEB) have raised about 2, $2 billion in combined entries. , according to FactSet. Since the start of the year, this figure stands at more than $6.7 billion. Large muni funds iShares and Vanguard have each returned about 1.7% year to date, compared to 1.6% for the iShares Core US Aggregate Bond ETF (AGG). And Vanguard isn’t the only asset manager bringing new muni funds to market. State Street, Goldman Sachs and American Century are among the many companies that have launched muni ETFs in the second half of 2024.
https://www.cnbc.com/2024/11/21/plenty-of-meat-on-the-bone-in-muni-bonds-vanguard-portfolio-manager-says.html
