BOSTON — Municipal bonds continue to provide a reliable refuge from stock-market volatility and a steady source of tax-free income. An index of muni-bond mutual funds has recently been yielding around 2.18 percent. What’s more, muni-bond fund performance has recently been solid, as is typically the case with steady-as-it-goes munis.
But for all of munis’ stability, investors have clearly been scared the past several weeks. While other mutual-fund categories have consistently attracted new cash, investors have been pulling money out of muni-bond funds. During the five-week period ended May 15, withdrawals exceeded deposits, with a net $171 million flowing out, said the Investment Company Institute.
Why the investor anxiety?
Investors fear a budget proposal by President Obama that would cap the amount of muni-bond income that an individual can claim as exempt from federal taxes. If Congress accepts Obama’s proposal — something highly uncertain in this fiercely partisan environment — the tax-exempt benefit would be capped at 28 percent for the top 2 percent of earners.
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