Tax-free municipal bonds look like a be a better bet right now than US Treasurys, Mike Pietronico, CEO of Miller Tabak Asset Management, told CNBC.
“Traditional tax-free municipal bonds are for the retail investors," Pietronico said.
Unlike the federal government, states and localities often are required by law to have balanced budgets, so there tends to be greater fiscal discipline, he explained.
There supply of muni bonds also is shrinking, again unlike the Treasury market, which is awash in new bond issues.
“People haven’t focused on the fact that the Federal government has gotten into the muni bond market and has shaved 25 percent of the market’s volume away through the build America bond program,” he continued.
The Build America bond program was initiated in early 2009 and allows municipalities to issue taxable debt with 35 percent subsidy from the Federal government, according to Pietronico.
“So what we've seen over the last year in the tax free municipal bond market is supply dropping about 25 percent, which is why the municipal market has been strong in the face of all these negative headlines,” he said.
“There’s legislation moving through the House right now that will extend the program for another 3 years at a diminished rate," he added.
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No immediate information was available for Pietronico or his firm.