Local finances in trouble, but fund investors can still profit
https://www.nytimes.com/2020/07/10/business/local-finances-troubled-investors-profit.html /Just counting the effects of the federal tax exemption, if you are within 24% federal tax bracket, the current 1.4% return from the Vanguard medium-tax-exempt fund is equivalent to a 1.84% return in a taxable bond fund (assuming, of course, that no of both is held in a tax sheltered account). For investors in the 35% federal tax bracket, the return is equivalent to a taxable return of 2.2%. The current average yield on basic bond funds (whose income is taxable) is 1.4%.
If this yield advantage is attractive, it should be reiterated that the coming months could be difficult.
Hayes warned that even with the economy reopening, municipal revenues “will only be a percentage of what they were before Covid.” Even if a vaccine arrives, people may not spend as much, rely on public transportation with the same enthusiasm, or drive or fly as much, or flock to stadiums, arenas and convention centers.
In addition, some states and cities that issued high volumes of bonds already had serious budget problems before the crisis: Illinois and New Jersey had many bonds rated BBB, the lowest step in the investment category. before the coronavirus. These and other states may find it more difficult to emerge from this recession./
