Obama's Tax Hikes Could Boost Demand for Municipal Bonds

President Obamas's budget proposes raising the marginal tax rates on the wealthy from 36% to 39.6%. It also proposes increasing by 5% the dividend tax rate. These changes will make tax-advanaged investments like municipal bonds more attractive. An article on bankinvestmentconsultant.com quotes Matt Fabian, a managing director at Municipal Market Advisors as saying:

"The Obama tax hike [on the marginal rates] would mean that muni investors could buy bonds about 40 basis points richer in yield to achieve the same after-tax yield."

This of course if no surprise. Increase the tax rate and the value of tax advantaged investments will increase. So if you believe Obama's budget will pass and his tax increases will hold, this is another reason to take a look at municipal bonds.

The national average for 10 year municipal bonds is 3.917% while the nationa average for a 30 year municipal bond is 5.3%.

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