Box spreads for muni bonds?

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kxl19
Posts: 248
Joined: Wed Mar 13, 2013 12:41 am

Box spreads for muni bonds?

Post by kxl19 »

Been following the box spread thread, and came to an interesting thought:

I've heard that margin interest on muni's is not supposed to be tax deductible, likely because of "double-dipping" on the margin interest + tax-exempt muni interest.

But - are box spreads considered margin?

If not - seems like an opportunity.. box spread is roughly 3%, a high-quality muni yield is ~3%, but Tax-equivalent yield is likely 5-6% at highest tax brackets.

You'd carry risk of having to re-finance the box spread at some interval - but if the rate goes up, it's also likely the muni rate is going up.

Any further thoughts on this?

A quick search yielded this discussion on ERN, which seems to arrive at a similar conclusion, use box income to go into muni's (see comment from TaxMule): https://earlyretirementnow.com/2021/12/ ... nt-page-1/
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