What is the average return on municipal bonds?

What is the average return on municipal bonds?

Virtual conference on exogenous information DIAN taxable year

In Mexico, the Federal Government currently issues and places four different instruments in the local debt market. These are cetes, bonos,[2] bondes and udibonos. In turn, the Instituto para la Protección al Ahorro Bancario (IPAB) places the so-called Bonos de Protección al Ahorro (BPAS), which, although issued by the Institute, have a credit guarantee from the Federal Government.[3] Banco de México acts as financial agent in the placement of these securities, both those of the Federal Government and those of the IPAB. A brief description of each of these securities is presented below.[4] The following is a brief description of each of these securities.

Regarding the control of the ownership of the securities, this is carried out through INDEVAL[17] where an accounting record is kept of the holdings of instruments in the hands of financial institutions. Financial institutions, in turn, keep an accounting record of their clients’ holdings. This ensures control over securities holdings.

Compound Interest | Example 1

Build America Bonds are taxable municipal bonds created under the American Reinvestment and Recovery Act of 2009, which carry special tax credits and federal subsidies for the bondholder or the issuer. Many issuers have taken advantage of the Build America Bond provision to secure financing at a lower cost than with traditional tax-exempt bond issuance. The Build America Bond provision, which expired on January 1, 2011, was open to governmental agencies issuing bonds to finance capital expenditures.[9][10][11]

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One of the main reasons municipal bonds are analyzed separately from other types of bonds is because of their special feature of providing tax-exempt income. Interest paid by the issuer to the bondholder is often excludable from gross income for federal, as well as state or local tax purposes, depending on the location of the issuer, which is subject to certain restrictions. Bonds issued for certain purposes are subject to the alternative minimum tax as a tax preference item.


Each bond also carries with it some risk that the issuer will “default,” that is, fail to repay the full principal amount of the loan received. Independent credit rating agencies analyze the default risk, or credit risk, of bond issuers, and publish their ratings – these ratings not only help investors assess risk, but also help determine the interest rate applicable to each bond. An issuer with a high credit rating will pay a lower interest rate than one with a low credit rating. Again, investors buying bonds with low credit ratings will be able to access potentially higher yields, but will have to bear the additional risk of default by the issuer of the bond in question.

A bond’s price and yield determine its value in the secondary market. Obviously, a bond must have a price at which it can be bought and sold (see “How bond market prices work” below). Also, the yield on a bond is the effective annual return that an investor can earn by holding the bond to maturity. The yield therefore depends on the purchase price of the bond and the coupon.

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With the economy rapidly recovering from the pandemic, interest rates on high-yielding state and local government securities have fallen to the lowest level in more than two decades. Cash is pouring into junk-rated debt-focused mutual funds so fast that money managers are scrambling to get new deals. And prices have rallied, pushing high-yield bonds to their longest streak of outperformance since 2014.

“We couldn’t think of a better time to go to market,” said Sarkis Garabedian, an investment banker at Ziegler, the underwriter of the bonds. He said the firm hadn’t seen this much interest in a transaction for a new senior campus since they began tracking metrics in the 1980s. “We really hit the sweet spot here.”

The dynamics show how much the municipal bond market has been dragged down by the global push toward higher-yielding assets as central banks around the world keep interest rates low to stoke economic recovery.

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