Muni Bond Yields and Performance
Posted by admin in Banking
Municipal bonds are usually issued by local governments as a way to raise capital for a host of public projects. These projects benefit the greater good of a particular city or its residents. Most of these bonds issue coupons, also known as interest income, on a yearly basis. In a lot of situations, this interest is tax exempt, which is why municipal bonds are such a popular choice among investors. Municipal bonds will have a variety of types of yields. In its purest form muni bond yields are the money or cash payout that will be provided to bond purchasers as their return on investment. The reason yields are so important is that they are an important tool for measuring the potential and ongoing performance of a particular bond or group of bonds.
Interest rate fluctuation will have an effect on the performance and payout of a municipal bond. If you buy your municipal bond at a time when the interest rates are high but it matures during a period when interest rates have lowered, you may want to sell your bond, but you will find that the bond is commanding a lower price. The two yields that will have the greatest effect on bond purchasers' investment efforts are current yield and yield to maturity. These two muni bond yields will give investors an idea of the bond's performance. The current yield can be calculated by taking the yearly interest payout of the bond or its coupon yield and dividing by the spot market price, which is the price at which you could sell the bond. The yield to maturity will give investors the amount of the total return if the bondholder keeps the bond until its maturity date.
You can leave a response, or trackback from your own site.