Texas governments and school districts are in the midst of a borrowing spree as the population swells. That caused bond yields to climb, giving investors a chance to buy pristine credits that are yielding 40 or even 50 basis points higher than the AAA benchmark.
A key factor for the bonds’ affordability is simply supply and demand. Texas municipal-bond issuance has jumped a whopping 35%, according to data compiled by Bloomberg. And unlike high-tax states like California, Texas lacks an inherent built-in investor base eager for a tax-exemption since it doesn’t levy a state income tax.
For example, Norwalk, Connecticut, sold AAA rated debt in August that yielded a paltry 2.73% for bonds due in 10 years. A wealthy resident — subject to the highest tax rates and filing jointly — would have to buy an out-of-state bond with a yield of at least 2.94% to make that trade worth it, based on an online tool offered by Eaton Vance Management.