Salient to Investors:

Matt Dalton at Belle Haven Investments said:

  • Demand for munis may rebound in July as investors deploy cash from principal and interest payments and this year’s outflows will push yields high enough.
  • The muni market has been brutal, but will turn around in the next few weeks.
  • When you apply a 39.6 percent federal tax rate to some of the yields, you forget how attractive they are.
  • No market trades in one direction forever. The opportunities will be quickly snapped up.

Dalton and Ebby Gerry at UBS Global Asset Mgmt are taking advantage of rising yields to buy at cheaper prices as the supply of debt in the secondary market has increased.

Bank of America Merrill Lynch data show investors have been dumping munis even though they have gained in 21 of the past 24 years in July.

Matt Fabian at Municipal Market Advisors said the move down in price has been so fast that the net asset values have not yet been able to catch up with it, and this year’s outflows will push yields high enough to bring investors back to munis.

For investors in the 39.6 percent tax bracket, the benchmark 10-year muni yield is equivalent to a taxable return of 4.4 percent, double the 2.2 percent dividend yield on the S&P 500.

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