Investing in taxable municipal bonds
Financing infrastructure projects using taxable municipal bonds is an area of growing interest. Municipal bonds are debt instruments issued to support a public purpose and finance infrastructure that improves communities in the United States, such as utilities, roads, bridges, schools and hospitals. Issuance of taxable municipal bonds, a segment of the overall municipal market, has increased in recent years, providing global institutional investors with an additional means of generating yield.
- What are municipal bonds and how can they support investment goals?
- What are the distinct characteristics of taxable municipal bonds?
- What role do taxable municipals play in a fixed income portfolio?
- How do active managers deliver results and manage risk?
- How to become an early adopter?
1 Cato Institute, Who owns U.S. Infrastructure?, Tax and Budget Bulletin No. 78, June 1, 2017; U.S. Bureau of Economic Analysis.
Infrastructure fixed assets: Cato Institute; U.S. Bureau of Economic Analysis. Municipal issuance: Securities Industry and Financial Markets Association (SIFMA.org); Seibert Research. New money project financing: The Bond Buyer. Bond ratings: Standard & Poor’s, Moody’s, Fitch. Taxable municipal and corporate bond sectors: Bloomberg. Municipal bond yields: Bloomberg and Municipal Market Data. Corporate bond yields: Bloomberg. Treasury yields: Bloomberg (subscription required). Defaults: Municipals Weekly, Bank of America/Merrill Lynch Research; Moody’s Investor Service. Standard & Poor’s and Investortools: http://www.invtools.com/.
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A word on risk
Investing involves risk; principal loss is possible. All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Investing in municipal bonds involves risks such as interest rate risk, credit risk and market risk. The value of the portfolio will fluctuate based on the value of the underlying securities. Bond insurance guarantees only the payment of principal and interest on the bond when due, and not the value of the bonds themselves, which will fluctuate with the bond market and the financial success of the issuer and the insurer. No representation is made as to an insurer’s ability to meet their commitments. This information should not replace an investor’s consultation with a financial professional regarding their tax situation. Nuveen is not a tax advisor. Investors should contact a tax professional regarding the appropriateness of tax-exempt investments in their portfolio. If sold prior to maturity, municipal securities are subject to gain/losses based on the level of interest rates, market conditions and the credit quality of the issuer. Income may be subject to the alternative minimum tax (AMT) and/or state and local taxes, based on the state of residence. Income from municipal bonds held by a portfolio could be declared taxable because of unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service or state tax authorities, or noncompliant conduct of a bond issuer. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.
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