FIs Investing in Municipal Bonds: What to look for

Chatham Financial White Papers – April 2017


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 lie within municipal bonds that may not immediately be apparent; risks which require more work on the FI’s part to understand and neutralize before investing in the enticing higher yields. Specifically, these risks include liquidity, credit risk and surveillance work, FI cost of funding, and potential political implications such as tax law changes. We will discuss how we at Chatham Investment Advisors analyze these risks, how to mitigate them, and how we work with FIs to provide the expertise and manpower to offset some of the risks and resources needed for municipal bond investment.

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