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Chief Market Strategist
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  Municipal Bonds Offer More Value Than Treasuries
Posted Under: Bond Market
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View from the Observation Deck

  1. The total return performance posted by long-term municipal bonds exceeded 20% for the 12-month period ended 1/31/12, well above the better than 6% gain posted by intermediate Treasuries.
  2. Even after factoring in the eye-popping recent return from municipal bonds, investors should note that tax-free bonds significantly lagged the annualized returns of Treasuries over the past 3- and 5-year periods, and slightly lagged the 7-year period.
  3. Fears over a potential spike in municipal bond defaults have subsided. The Rockefeller Institute just reported that state tax revenues increased for the 7th consecutive quarter in Q3'11.
  4. The Bush tax cuts are due to expire at the end of 2012 if not extended. The Obama Administration just published its budget for fiscal 2013 ($3.8 trillion) calling for tax hikes on the wealthy to help pay for it.
  5. As of 2/13/12, the yield on the Bond Buyer 40 Index of municipal debt was 4.59%, more than double the 1.94% offered on the 10-Year T-Note.
  6. The taxable-equivalent yields for municipal debt yielding 4.59% would be as follows (for the indicated ordinary income tax bracket): 6.12% (25%); 6.38% (28%); 6.85% (33%); and 7.06% (35%).
Posted on Tuesday, February 14, 2012 @ 3:44 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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