This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Sources: Municipal bond yields sourced from The Bond Buyer www.bondbuyer.com Data Workstation and MBIS www.mbis.com, U.S. Treasury bond yields sourced from the U.S. Department of the Treasury www.treasury.gov and the S&P 500 Dividend Yield data as of 10/5/2018 and was sourced from S&P Dow Jones Indices www.spdji.com. At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. Copyright © 2018 Rieger Report LLC. The state income tax exemption for Treasury bond interest is a less substantial advantage for individuals living in states that levy income taxes. © 2020 TheStreet, Inc. All rights reserved. Meanwhile, municipal bonds are used to fund local and state public projects, such as roads, schools and other infrastructure. U.S. Treasury bond yields sourced from U.S. Department of the Treasury www.treasury.gov. Copyright 2020 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. It should not be considered financial advice. Current indicated dividend yield is used. Julio Bonilla, portfolio manager for the Schroder Broad Tax-Aware Value Bond Fund, says munis still offer good value, as he details his top picks. Site Created by PW Designs, for more information visit www.pdoubleu.com. When a company issues bonds, it agrees to pay its bondholders a certain amount of interest over a preset period of time and then repay their principal investments at a predetermined date. However, it is exempt from any possible local and state income taxes. Bonds also called a fixed income instrument. That represents a great opportunity, he added. The federal government issues treasury bonds, while local and state governments issue municipal bonds. Currently, Bonilla says he wants to use the recent rally in Treasury bonds as an opportunity to lower his exposure in this type of investment and invest more in the municipal bond market. 10 Year US Treasury Bond +10bps. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other investment product or vehicle. When bonds mature, organizations can issue new bonds. Chart is provided for illustrative purposes only. Overall, bonds did their job as anchors when volatility struck the equity markets this past week. Municipal Bonds vs. Treasury Bonds Yield Gap: Liquidity Risk. Post was not sent - check your email addresses! TEY = Taxable Equivalent Yield at tax rate assumption stated. Bonilla says he's searching for the bonds with the best after-tax total returns, and believes that munis with a five- to seven-year duration are the most attractive. The risk of the Treasury Department not making scheduled debt payments on time is improbable. Tom Gresham is a freelance writer and public relations specialist who has been writing professionally since 1999. Municipal bonds have a very low risk of default because of the capability of local and state governments to increase taxes to cover their debts, but they are not as risk-free as treasury bonds. Zero-coupon bonds do not make interest payments but compensate investors who pay less than the face value they receive when the bond matures. MyMoneyBlog.com is a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Semiannual Payments. JR Rieger and or the Rieger Report LLC has not received compensation either directly or indirectly from the sponsor(s) of the ETF(s) included in this report. Since 1986 it has nearly tripled the S&P 500 with an average gain of +26% per year. Nuveen Municipal Value Fund NUV data by YCharts. This is because of the tax advantages that the securities provide and their backing by their government providers, meaning issuers do not need to offer higher rates to attract investors. Chart is provided for illustrative purposes only. Each week, Zack's e-newsletter will address topics such as retirement, savings, loans, mortgages, tax and investment strategies, and more. The Rieger Report LLC does not act as a fiduciary or investment advisor. 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Treasury bonds have no risk of default because they are guaranteed by the federal government, meaning you can count on receiving your principal and interest on time. The federal government issues treasury bonds, while local and state governments issue municipal bonds. AAA municipal bond yields saw more overall movement cheaper than either UST and high grade corporate bonds yields. Enter your email address to follow this blog and receive notifications of new posts by email. Individual short-term municipal bonds are usually sound investments. The calculation is straightforward. August 28, 2017 By Jonathan Ping 4 Comments. To the maximum extent permitted by law, Rieger Report LLC disclaims any and all liability in the event any information, commentary, analysis, and/or opinions prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses. Example: Let’s say Smith purchased a government bond from the government for a worth of INR 10,000 and the term of the bond … Both treasury bonds and municipal bonds provide their investors with a source of income through regular interest payments. The MOB is … His articles have appeared in "The Washington Post," "Virginia Magazine," "Vermont Magazine," "Adirondack Life" and the "Southern Arts Journal," among other publications. There's also what he calls "dedicated revenue bonds," or bonds which have revenue streams that are dedicated to paying bondholders. The interest payments highlight the lender relationship that an investor has with treasury and municipal bonds, and it provides investors with an incentive to invest in these types of securities. However, those interest payments will be subject to taxes. Yield curve shifts in October so far: (data as of 10/12/2018), Municipal bond yields: the Bond Buyer Data Workstation, U.S. Treasury bond yields: U.S. Department of Treasury, Taxable Equivalent Yield = Tax Exempt Yield / (1 – Federal Tax Rate), 2018 tax brackets, however not all tax brackets are represented herein.