Yield-starved foreign investors are flooding the U.S. muni market

May 23, 2016 10:59 AM

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Strange are the times when a third of all government debt around the world carries a negative yield, and yet such is the case today.

From Japan to eurozone countries, investors are faced with the tough decision of accepting subzero yields, doing nothing—or seeking other so-called “safe haven” options. Many have rediscovered gold, and as I pointed out earlier this week, demand for the yellow metal as an investment just had its best first quarter ever, with near-record inflows into gold ETFs.

But gold hasn’t been the only beneficiary.     

Overseas investors, starved for yield, are also flocking to investment-grade U.S. municipal bonds, which help fund infrastructure projects at the state and local levels. (Seventy-five percent of all infrastructure spending in the U.S., in fact, is financed with municipal bonds.) Munis offer a history of low volatility and near-zero default rates, not to mention diversification and attractive yields in a world of little to no yield. Below, notice that Japan’s 10-year government bond yield continues to edge lower into negative territory.

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About the Author

Frank Holmes is CEO and chief investment officer of US Global Investors. This first appeared in his Frank Talk blog. For more updates on global investing from Frank and the rest of the U.S. Global Investors team, follow on Twitter at www.twitter.com/USFunds or like on Facebook at www.facebook.com/USFunds.