Muni-bond prices have plunged amid concern about renewed inflation, a flood of supply from issuers and speculation that Congressional Republicans, after winning control of the U.S. House in the Nov. 2 midterm elections, will block aid to cities and states.

Why are bond funds falling?

Bond prices decline when interest rates rise, when the issuer experiences a negative credit event, or as market liquidity dries up. Inflation can also erode the returns on bonds, as well as taxes or regulatory changes.

Do bond funds lose money?

A bond fund with an average duration rate of 10 years would lose about 10%. If interests went down by 1%, the funds would gain 3% and 10%, respectively. Bonds have historically provided downside protection during periods of stock-market declines.

What happens to bond prices when stock market crashes?

Bonds affect the stock market by competing with stocks for investors’ dollars. Bonds are safer than stocks, but they offer a lower return. As a result, when stocks go up in value, bonds go down. … When the economy slows, consumers buy less, corporate profits fall, and stock prices decline.

What’s the yield on a municipal bond in 2017?

Effectively, that means the yield on a municipal bond paying 2.50% would drop to 1.85%. The 2017 tax law changes increased the phase-out thresholds for AMT to $1 million for joint filers, up from $160,900—meaning fewer filers will be subject to AMT under the new tax laws.

What is the de minimis rule for municipal bonds?

The de minimis tax applies to munis that you acquired at a market discount. The de minimis rule says that for bonds purchased at a discount of more than 0.25% for each full year from the time of purchase to maturity, gains resulting from the discount are taxed as ordinary income rather than capital gains.

Are there any muni bonds that are taxable?

A small minority of munis are taxable. For example, interest paid on bonds issued to help fund an underfunded pension plan or bonds issued under the Build America Bonds (BABs) program is federally taxable. Taxable muni bonds generally yield more than tax-free bonds to make up for the difference.

Do you have to pay AMT on municipal bonds?

Income from some municipal bonds—for example, those that fund stadiums, airports or more businesslike enterprises—might be subject to AMT. If you have to pay AMT and hold such a bond, your interest income would generally be taxed at the applicable AMT rate—which could be 26% or more, if you’re in the AMT exemption phase-out range.