FIs Investing in Municipal Bonds: Are you ready for the Double Whammy?
Municipal bonds (“Munis”) can be an important asset class to hold in a FI’s investment portfolio, offering lower taxable income and higher tax equivalent yields (“TEY”) (often times more than 50bps) than similarly rated investment alternatives. However, additional risks potentially lie on the short-term horizon – risks which are unique to tax-exempt munis and financial institutions – risks that could eat away a large chunk of that attractive tax-equivalent yield. In the following bulletin, we will detail what the two main risks are for financial institutions investing in munis in the short term, and how to prepare for them. If you would like to read a more in-depth review of Chatham Investment Advisor’s approach to investing in municipal bonds, please see our white paper “FIs Investing in Municipal Bonds: What to look for” found here.