Municipal Bond Forum
Decline in muni supply would lead to lower yields, higher prices
Q
“Clearly, with BABs reducing the supply of tax-free munis while higher tax brackets heighten demand, it is not difficult to predict that investors buying high quality tax-free bonds yielding 5.00% or more today will be very pleased they did.” Seems to me the reverse is true: Diminished supply of tax exempts and increased demand for them will lead to higher prices and lower yields for muni investors. BABs are a disaster for tax-free investors. It’s the classic example that causes inflation – too much money chasing too few goods.
A
James A. Klotz responds:
We happen to agree with you.
We believe that a declining supply of tax-free bonds will lead to lower yields and higher prices, as you suggest.
This is why we think investors buying bonds yielding 5.00% today will be glad they did as yields trend lower.
Start here.
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