Muni ETFs For Safety And Yield

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The Fed has largely let inflation run higher for the time being. If you aren't earning 3-4% a year, you're guaranteed to lose purchasing power by the time you call in your capital. Why do that?

With a well-diversified portfolio of US municipal bonds, the Invesco Municipal Trust (VKQ), along with being exempt from U.S. federal taxes, comes with a perfect record of capital preservation for those seeking secure current income without having to compromise on yields.

The municipal bond market continued to experience positive returns despite the pandemic that forced most cities across the US into a lockdown. Numerous coronavirus aid and relief programs and the Federal Reserve's Municipal Liquidity Facility instilled confidence among investors looking for alternatives to the equity markets that were in turmoil during the first half of last year.

Municipal bonds have a long history of absolutely no defaults. Even though speculations and downgrades do have an impact on valuations, the interest and principal payments will stay on-course irrespective of broader market conditions.

The Invesco Municipal Trust uses leverage to magnify returns for investors, which can also magnify declines in the prices of securities held. However, for long-term common shareholders this can bring in additional income despite increased volatility. Investors looking for yields and current income need not be concerned with the volatility.

The trust is, however, significantly vulnerable to interest rate risks, especially the low-interest rate environment at the moment. How this plays out with the demand and supply for individual securities held by the trust, along with the direction, speed and magnitude of interest rate changes is to be seen, however, here again, it's the volatility and liquidity that stand to be impacted.

If you’re after high yields with a significantly low-risk profile, the Invesco Municipal Trust is the perfect place to park your funds. We expect it to reach out Target Price of $15 shortly, and our Sell Price remains at $10.

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