Forget bitcoin or Tesla. Muni bonds are the king of costly
Live MintBelieve it or not, the $3.9 trillion municipal-bond market and Bitcoin have much in common. As Bloomberg News’s Danielle Moran noted, yields had fallen so low on top-rated tax-free debt that even after accounting for the exemption from federal taxes, it still made more sense for investors to purchase Treasuries instead. Because most municipal bonds are exempt from federal income taxes, analysts prefer to gauge the market’s relative value using the muni-Treasury ratio, which divides the yield on triple-A rated tax-free debt by Treasuries with the same maturity. According to Bloomberg Valuation data that tracks bond yields for 20 different states, five-year debt from all but Illinois and New Jersey yields less than five-year Treasuries, and many state obligations would yield less even after factoring in the tax exemption. But it’s also fairly obvious that muni-Treasury ratios can’t permanently remain at levels that make tax-exempt bonds borderline impossible to buy.One of the more troubling dynamics of this supply-demand mismatch is that fund managers are clearly reaching to purchase longer-dated debt or riskier securities.
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