MUB

In U.S. high yield bonds we find the riskiest of credits.I have some concerns about municipal bonds and am particularly concerned about municipal pension bonds.Our 'Borrower's Paradise' is also good news for many leveraged ETFs and closed-end funds.

Municipal bonds are illiquid and tax-exempt and thus well targeted at very wealthy high-income individuals who face high tax rates.Given the racial disparity in wealth, it would be astounding if the disparity in municipal bond holding were not very large as well.To forestall a bankruptcy, you do not just lend money for current operations - you end up taking on past debts.

Municipal defaults and bankruptcies remain rare overall, even though they may have become more common over the last 10 years.At the end of 2019, the median rating for U.S. municipal credits had risen to Aa2 (2018: Aa3).We still believe that municipal bonds remain important to the core strategy of constructing an individual portfolio.

Municipal bonds continue to attract investor interest, even in hard-hit areas like New York, which was the center of the pandemic in March.The market appears to be pricing in robust federal support for the muni sector, but President Trump and the Republican-led Senate seem resistant to this idea.As yields decline, so has MUB's income stream. While the tax benefits of munis remain relevant, I see a limited total return in the months ahead.