Investing in municipal bonds as interest rate hike looms

Green symbol percent

Speculation has been renewed over a hike in interest rates — after all, the increase has been pending for the last three years…

Reuters practice management reporter Hilary Johnson decided to provide her advisor readers with tips on how to discuss muni bonds with clients, given that a rate hike seems to be imminent. I offered some perspective to the piece, which you can access here. The article delves into how municipal bonds offer certain investors tax benefits and reiterates that despite a potential rate increase, there is still a place for munis in client portfolios. Below, we highlight a few important elements:

  • We utilize munis for clients who will reap the tax benefits.
    • If the client is not tax-sensitive then we look at corporates because they typically offer a higher yield.
  • When analyzing munis, we typically like the seasoned municipalities of states that have a good quality rating behind them. Municipalities that have a track record of paying good yield and returning principal is where we put money to work.
  • While a small segment of clients are concerned about rising rates, we remind them not worry about the fluctuations because they happen every day. In the end, the rate hike will likely be nominal and that change won’t make a significant impact on our municipal bond investments.

 

 

Fort Pitt does not  offer tax or legal advice.