Under existing tax law, tax brackets will increase at the end of 2025 with the expiration of the 2017 Tax Cuts and Jobs Act. (TCJA). Assuming existing law remains the same, many people will find themselves in higher tax brackets as a result. Therefore, for many people, it will be advantageous to shift from taxable bond holdings to nontaxable municipal bond holdings, because the after tax returns for municipal bonds will be higher than their returns for taxable bonds. Does this suggest the following actionable items?: (1) buy municipal bonds now expecting that there will be a future increase in the demand curve for these bonds, and the value of existing municipal bonds will be "bid up" by the shifting demand curve?; (2). Buy longer term municipal bonds because this increased demand effect is likely to have a greater impact for intermediate and longer term bonds. In other words, will municipal bond funds get a permanent increase in market value due to a permanent shift in investor demand, as investors move their bond holdings in the second half of 2025? How great will this increase in value be?
Alternatively has the market already foreseen and incorporated this increased demand and there is now a "premium" built into municipal bond prices due to this expectation by investors? Just reading comments on this forum and in popular investment literature, it does not seem that many individual investors have made the shift in thinking about increased value of municipal bonds, so the typical Boglehead reader thinking about this issue may be able to do some profitable market timing.
Note, even though a limited percentage of individual investors will benefit from shifting to municipal bonds from taxable bonds, all current holders of municipal bonds would benefit from this possible market driven increase in value
Alternatively has the market already foreseen and incorporated this increased demand and there is now a "premium" built into municipal bond prices due to this expectation by investors? Just reading comments on this forum and in popular investment literature, it does not seem that many individual investors have made the shift in thinking about increased value of municipal bonds, so the typical Boglehead reader thinking about this issue may be able to do some profitable market timing.
Note, even though a limited percentage of individual investors will benefit from shifting to municipal bonds from taxable bonds, all current holders of municipal bonds would benefit from this possible market driven increase in value
Statistics: Posted by Johninvestor — Wed Mar 27, 2024 11:14 am — Replies 0 — Views 55