Muni Yields Remain Attractive—For Now
That's seen in the elevated municipal/Treasury ratio, known as the M/T ratio, said veteran muni bond manager John Loffredo, co-head of MacKay Municipal Managers, which issues the $835 million NYLI MacKay Municipal Intermediate ETF (MMIT) and $485 million NLYI MacKay Municipal Insured ETF (MMIN).
The metric compares the yields of an index of AAA-rated municipal bonds to an equivalent yield on U.S. Treasury bonds. Based on current yields, the ratio ranges from about 75% on the 10-year muni bond to about 91% for 30-year muni bonds. It's about 10 basis points higher than usual.
'When you do your tax adjustment, at the highest tax rate of 37%, the yields that you're getting are extremely attractive, we believe,' Loffredo said.
MMIT has a current tax-free yield of 3.7%, and MMIN's current yield is 4%, which equates to 5.9% and 6.3%, respectively, for an investor in the 37% tax bracket.
Muni bond prices fell sharply in April as did most other asset classes and haven't fully recovered, keeping yields elevated. Loffredo said several muni-specific factors spurred selling: worries that Congress would strip munis of their tax-free status, the current administration's targeting of certain segments of the muni market, including private higher education and possible Medicaid reimbursement, which would impact non-profit healthcare providers, and investors selling muni bonds to find cash to pay their annual tax returns.
He is positive on the outlook for munis as the ratings for many states are stable and munis are likely to be less volatile than other credits, such as corporate bonds or securitized vehicles, if the economy goes into a recession.
Congress is still working out the tax bill, aiming to pass it by the July 4 holiday. Loffredo said he doesn't expect the muni tax status to change, and even if states need to take on Medicaid payments, it doesn't change his outlook.
Many states have built up rainy-day funds and, if states ultimately must shoulder more Medicaid payments, they have time to figure out how to adjust, he said. States can't run budget deficits, and he expects states will either raise taxes or lower their expenses to keep those budgets balanced.
Even states such as Illinois and New Jersey, which have large unfunded liabilities in their pension obligations, have positive operating balances. Both states have made 'significant progress' in staying on a timeline to get those funded again, he said.Permalink | © Copyright 2025 etf.com. All rights reserved
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