“Everyone expected state and local governments to suffer more from Covid than they did,” said Amanda Beck, an accounting professor at Georgia State University in Atlanta. “But they got a lot of federal relief money, and that made up for downfalls in revenue. Plus, property values didn’t fall, so tax revenues didn’t drop as much as was expected.”
Inflation F.A.Q.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
The higher yields mean that municipal bond funds and E.T.F.s are providing better income than they have in quite a while.
“When you’re delivering 2 percent yields, it’s not fun for anybody, and the market was like that for a long time,” said Jim Murphy, head of the municipal bond team and a portfolio manager at T. Rowe Price. “I haven’t seen great value in the market in a long time, but I think the market now, with rates higher, is healthy.”
As of the end of June, T. Rowe Price’s oldest municipal bond fund, its Tax-Free Income Fund, was paying a yield of 3 percent, up from 2.4 percent at the end of December. A fund Mr. Murphy manages, a high-yield municipal offering that invests “a substantial portion of assets” in junk bonds, was paying 3.4 percent.
Vanguard called the surge this spring in municipal yields a “renaissance of tax-exempt income.”
Paul Malloy, head of municipal investments at Vanguard, said rising yields should benefit patient long-term investors.
“One of the things we see frequently in municipal markets is a herding effect and people chasing returns on the upside and then, on the downside, saying, ‘Oh, no, I better get out.’ That kind of market timing is something we constantly warn municipal investors against.”
