Consider Swapping HY Bonds for HY Muni

by PL


The investor’s shelf needs to include tools and techniques, as well as texts and journals. Tax-loss swaps are a tool frequently used by bond investors to turn lemons into lemonade by simultaneously harvesting losses and adjusting the positions in the portfolio. 

While many investors most often think of tax-loss swaps as a year-end strategy, now may be a good time to review your portfolio for opportunities to harvest tax losses.

This can be particularly timely for investors with allocations to high-yield corporate bonds who may be disappointed by recent negative returns and who were also surprised by the higher-than-expected correlations with their equity positions.

Of course, some investors without exposure to high-yield corporate bonds are currently thinking about getting in, suggesting that now could indeed be a good time to think about harvesting losses and establishing a new cost basis.

Investors who want to reduce the equity correlation of their fixed-income allocation and are comfortable maintaining their exposure to noninvestment-grade credit risk may want to consider swapping from high-yield corporate bonds into high-yield municipal bond ETFs.

While the credit risks in high-yield municipal bonds can be much different from traditional investment-grade public-purpose municipal financings, the recent performance of the high-yield muni sector has been much different from high-yield corporates… CLICK HERE to read my complete article on


This is not a recommendation to buy, sell or hold any of the securities mentioned. The author does not provide investment, tax, legal or accounting advice. Investors should consult with their own advisor and fully understand their own situation when considering changes to their strategy, tactics or individual investments.