- Municipal bond investors are clearly worried about rising rates and rising inflation.
- The inflation component is also taxed at ordinary income tax rates, but here’s the kicker there: you don’t receive the benefit of it the year that it’s realized.
- As yields are rising – and inflation expectations are likely rising because there’s a high correlation between the two – even though the bonds may be losing value, the swaps are gaining in value and that’s where you get your offset.
Apr. 30, 2021