Does anybody know where we can find an estimate of what the taxable equivalent yields are for the overall bond markets?
I’m trying to woo a client who has a huge tax-free portfolio, and I’m trying to explain to her that she’d be better off by taking the taxable income and paying the tax, rather than investing in tax-free stuff.
Does anybody know where I can find a 30,000-foot view of the difference in yields? I could calculate it, but I’m kinda lazy and don’t really have the time right now.
Why not just show taxable yield * (1 - her marginal tax rate)?
Yeah, but I wonder at what tax bracket it makes sense to be in municipal bonds. So I need to know the yield on the universe of taxable bonds vs. the yield on the universe of municipal bonds.
Maybe I can just go to the iShares website and look up the yields for the ETF’s and use that as a proxy.
I think I just answered my question.
(FYI - this woman is in the 15% marginal rate. Based on virtually zero research, I figure it’s probably better for her to own taxable bonds and pay the tax.)
there you go nigga.
marignal tax at 33% is when you go munis
what breadmaker said is right.
OK. So the yield on AGG is 2.4% and the yield on MUB is 2.3%. That’s a difference of 4.2%.
So if she’s paying any tax at all, she’s better off in MUB than in AGG.
(edit - 12m trailing yields on both)
I’ve always been told that municipals only make sense for people in the 33% bracket and above. What am I missing?
#WrongForum
if we focus on 1 year rates. (since rates are expected to rise).
assume 15% marginal tax rate
type/current yield,after tax yield
aaa corporate is 2.35%. = 2%
aaa municipal is 1.58% = 1.58%
us treasury is 2.1% =1.785
so clearly corporate bonds win at 15% marignal rates
assume 35% marginal tax and their respective after tax yield is 1.52%, 1.58%, 1.698% so munis would win if marginal tax is at 35%
I’d guess that the munis would make more sense if your client is in a high tax bracket, since institutional investment firms, which influence supply and demand of these products, are probably more tax efficient than individuals as a whole.
Where are you guys getting these numbers? That municipals have 33% lower yield than corporates? And is this a hypothetical bond we’re talking about? Or a real-life fund that is investable?
not a fund. real bond. not sure on liquidity for them though or reqs. its their ytm yield. plus i cherry picked the highest yield for each credit rating
if you want funds here they are:
muni at 1.07%, after tax is same. http://etfdb.com/etf/SHM/
treasury at 1.07%after tax is 0.91%. http://etfdb.com/etf/SHY/
corporate at 1.7% after tax is 1.45%. http://etfdb.com/etf/CSJ/
corporates higher if marginal tax is 15 or 35