13.1
Municipal Bond Tax Arbitrage
PYTHON PLUGIN
Tax
Arbitrage
Description
Strategy 13.1: Buy tax-exempt munis, finance with taxable borrowing for positive after-tax carry
Strategy Logic
Strategy 13.1: Municipal Bond Tax Arbitrage.
Buy tax-exempt municipal bonds, finance the purchase with taxable
borrowing. The after-tax return is:
R = r_long - r_short * (1 - tau)
where:
r_long = yield on tax-exempt muni bond
r_short = cost of taxable borrowing
tau = marginal corporate tax rate
Signal: BUY when the after-tax spread R is positive and above a
configurable threshold.
Required columns: muni_yield, borrow_rate.
Falls back to close-based proxy if not available.
Parameters
| Parameter | Default Value | Type |
|---|---|---|
| tax_rate | 0.21 | float |
| spread_threshold_bps | 20 | int |
| exit_threshold_bps | 5 | int |
Risk Configuration
| Risk Parameter | Value |
|---|---|
| Max Position Pct | 10.0% |
| Stop Loss Pct | 3.0% |
| Take Profit Pct | 5.0% |
| Max Drawdown Pct | 8.0% |