Keep more of what you earn

Keep more of what you earnTax-adjusted income may make municipal bonds attractive in today’s market.

This year, yields have adjusted dramatically higher due to selling pressure in the municipal bond market against the backdrop of rising interest rates. We think current high municipal yields may offer an attractive entry point for investors seeking tax-adjusted income.

The value proposition for municipal bonds appears notably more attractive when considering the taxable-equivalent yield. For example, at the top US federal income tax bracket 40.8%, a 30-year AA-rated New York municipal bond’s taxable-equivalent yield is 6.67%, but at the 22% tax bracket (not shown in the chart), that taxable-equivalent yield would still be an attractive 5.06%.

Taxable-equivalent yield on a municipal bond versus taxable alternatives for top US federal income tax bracket

As of June 6, 2022

* Taxable-equivalent yield is determined by taking the yield of a tax-exempt bond and dividing it by 1 minus an investor’s federal income tax bracket. For this chart, a 40.8% tax bracket is used (37% federal income tax + 3.8% Medicare tax), so 3.95% divided by (100% – 40.8%) = 6.67%.

Source: Bloomberg, as of June 6, 2022.

Chart is for illustrative purposes only

What this means for investors

Year to date, municipal bond yields have risen more and their AAA-rated yield curve has steepened more than that of Treasurys. Given this environment, we think municipal bonds, appear more attractive versus other fixed income options, even before applying the tax benefits.

Exploring investment opportunities in municipal bonds may make sense for today’s income investors, not just those in the highest tax brackets.


Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

The views expressed represent the investment team’s assessment of the market environment as of June 2022, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice.

Market risk is the risk that all or a majority of the securities in a certain market – like the stock market or bond market – will decline in value because of factors such as adverse political or economic conditions, future expectations, investor confidence, or heavy institutional selling.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt. The Fund may also be subject to prepayment risk, the risk that the principal of a bond that is held by a portfolio will be prepaid prior to maturity, at the time when interest rates are lower than what the bond was paying. A portfolio may then have to reinvest that money at a lower interest rate.

Investments may not receive payment of principal, interest, and other amounts due in connection with bank loans and other direct indebtedness because they primarily depend on the financial conditions of the borrower and lending institution.

Recipients should not construe the contents of this presentation as tax advice. Macquarie Asset Management is not in the business of providing tax services.

Charts shown throughout are for illustrative purposes only and not meant to predict actual results.

Chart is for illustrative purposes and is not representative of the performance of any specific investment.