New York, New Jersey Muni-Bond Buyers Reap Net Yields Near 10%

What You Need to Know

In states like California and Texas, investors in the top tax bracket can reap yields ranging from 8% to 10%.

UBS Financial Services Inc. is urging investors to buy the debt of states, whose credit quality is among the highest in the $4 trillion municipal bond market and whose bonds are offering sky-high after-tax yields.

Strong revenue growth, record-high cash reserves and billions in pandemic stimulus strengthened the credit quality of U.S. states, just as a muni-market selloff has driven yields to their highest levels since the financial crisis more than a decade ago.

In New York, for instance, yields on 30-year debt are 4.8%. On a tax-equivalent basis, which accounts for tax savings, that translates to roughly 9.8% for buyers in the state’s top tax bracket, according to a Friday research note by Kathleen McNamara, senior municipal strategist at UBS.

“Given the higher yield environment, we believe that high quality state GO bonds now present an attractive risk-return tradeoff for long-term investors,” McNamara wrote.

The report also highlighted states like California, Texas and Washington, where investors in the top tax bracket can reap yields ranging from 8% to 10% for long-maturity, general-obligation debt.

For New Jersey, UBS strategists suggested bonds in the 15- to 21-year maturity range.