INSIGHTS

On December 08, 2015

AAM Viewpoints - Have Capital Gains? Bond Tax Swap Season is Upon Us

A fair amount has been written on the gains in the equity markets the past several years and speculation on if the bull market is over. The point is that some investors are selling equities and locking in profits even if it’s only on a portion of the investments. Typically, this time of year, bond tax swaps – where an investor sells a bond and simultaneously purchases another bond with the proceeds from the sale – has the potential to enhance portfolios.

With the broader equity market basically in positive territory, investors may look toward the fixed income markets for opportunities to sell a bond with a loss to pair against gains in other markets. On the surface this would seem challenging given the benchmark 10-year Treasury started the year at a yield of a 2.17% and is currently 2.22%. This would imply that the fixed income markets are flat. The opportunity to swap for a tax loss may take some deeper digging. Although the fixed income markets were relatively even for the year, there are sectors or individual issuers that did not fair too well in 2015 and before.

When thinking of the taxable fixed income markets, the energy sector, oil, mining, and materials certainly did not fare well this year. In the municipal bond markets, it has been apparent that certain issuers – such as Puerto Rico, Detroit and Illinois – have experienced credit issues that have driven the value of their bonds down in value.

When addressing portfolio needs as we near year end and prepare for tax season, it may be beneficial for the investor to investigate issuers within a portfolio to seek potential tax opportunities to pair against gains. It will not be as easy as prior years, but realizing swap opportunities in a portfolio could improve portfolio composition. Swapping also provides an opportunity to restructure a portfolio to better meet the investor’s needs along with repositioning a portfolio to address current market environment.

CRN:  2015-1208-5074R

Advisors Asset Management, Inc. and its representatives do not provide tax advice. Laws applicable to tax-related investment strategies can be complex and are subject to change. You should consult your own tax advisor before making any tax-related investment decisions.

All information and opinions contained in this publication were produced by Advisors Asset Management, Inc. (AAM) and other sources believed to be accurate and reliable. By providing this general information, AAM makes neither a recommendation as to the appropriateness of investing in fixed income securities or using a tax swap investment strategy. Tax swaps are not for everyone. Using a tax swap strategy has many risks so it is recommended that you seek counsel from both a financial professional and a tax advice professional. AAM is not providing any specific investment advice for any particular investor. Additionally, due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources are required to make informed investment decision based on the investor’s suitability specifications. AAM and its representatives do not provide tax advice.