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How Trump’s Tax Plan Helps Income Investors

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As we wait for details on the new tax plan proposed by President Trump and the impact it will have on investors, let’s review some current news for income-oriented investors.

Trump’s Tax Plan

3 Ways Muni Bonds Could Benefit from Trump Tax Plan (Barron’s, April 27)

The author claims the muni market won’t see huge changes if President Trump’s new tax plan gets passed, but there are three key changes that could provide benefits to investors. First “lower marginal rates are already priced into the muni market and now long-term bond yield ratios will come down, making munis a better bet than taxable bonds.” Second, the alternative minimum tax (AMT) could go away making bonds previously subject to AMT “likely to trade better than their non-AMT peers.” Finally, if the ability to deduct state and local taxes from federal income tax is eliminated “the demand for in-state tax-exempt bonds in high-tax states will climb, pushing yields down relative to yields for other munis.”

How Do ESG Factors Impact Fixed Income Investing? (Morningstar, April 27)

The authors of this study analyze the relationship between environmental, social and governance (ESG) factors and credit risk and how they impact valuations. They concluded that while credit risk is still the most important driver of CDS spreads, good ESG practices also have a risk reduction effect on companies.

The Hidden Risks in Income Assets (Investing.com, April 26)

With income-oriented ETF assets growing to more than half a trillion dollars over the past 10 years, the author looks at whether there is a bubble brewing. Despite the growth, it is still a small figure compared to the $80 trillion global bond market with a variety of risks and product offerings. “The level of risk in this booming group of asset classes is real, diverse and complex to manage…the next downturn will also present a unique set of challenges to the ETF market itself.”

By Anna Sachar, read the full article here.

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