Municipal bond funds have taken a big hit in the last couple of weeks (see the chart above). Vanguard Long Term Tax Exempt (VWLTX) is currently yielding 4.34% and Vanguard Intermediate Term Tax Exempt (VWITX) is yielding 3.78%. Ten Year Treasuries are yielding around 3.8% on which you will have to pay federal tax. Is the risk of default on a portfolio of municipal bonds really so high?
If you want even higher yields, you can consider municipal ETFs. SEL is yielding 4.55% and is selling at a 7.5% discount to NAV. PIF is yielding 5.7% and is selling at a 12% discount to NAV. These ETFs are leveraged, have a much higher expense ratio than the Vanguard funds, and have been volatile recently so additional caution is advised.
If the credit markets stabilize in the near future, municipal bond funds could become a very attractive place for the fixed income portion of your portfolio.
No comments:
Post a Comment