Focusing the Tax Debate on Munis

Daily Stat | November 02, 2012 | Topics: Fixed Income 

0%: Tax rate that market is currently pricing into munis

Among other topics, investors are wary of the possibility that municipal bonds might lose their federal tax-exempt status in the wake of next week's elections. But we believe there is too much support of the current exemptions to allow for drastic changes. Consider also that the market currently is priced 0% for tax rates. So, with munis outyielding Treasuries before tax, the market is not pricing in the value of tax exemption. This means in the unlikely event that we do see tax reform on this front, the market has a bit of a cushion.

Source: BlackRock, October 2012

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