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After the Largest Municipal Bond Selloff in 25 Years, Lower Prices Offer Investors a Potentially Attractive Entry Point

Bloomberg Municipal Bond Index. Source: Bloomberg as of dates shown. Data based on past performance, which is no guarantee of future results. See Terms and indices below for more information.

   

Municipal bonds, issued by cities, states, and municipalities, offer investors tax-free income and a degree of relative safety compared to other bonds due to low historical default rates.

Having suffered their worst quarter in 40 years in the first quarter of 2022 and still seeking turnaround inflection point, we believe municipal bonds now provide a compelling opportunity for investors seeking tax-exempt income and a potentially opportunistic entry point to invest in the asset class. Municipal bonds’ combination of higher tax-exempt yields, lower average prices and continued low defaults make this asset class favorable for both retail and institutional buyers.

The ratio of AAA-rated municipal bond yields to US Treasury yields is near 87% for 10-year maturities and 92% for 30-year maturities as of 6/30/22.  At ratios this high, many investors can benefit from tax-exempt municipal income.

Despite investor fears, municipal bond defaults remain low due to support from federal aid packages, positive tax receipt trends, strong reserves, and proactive debt management by municipalities.

Retail outflows have been significant in 2022.  A reversal of flows would provide a potentially significant tailwind for municipal bond valuations.

At current valuations, municipal bonds become an attractive alternative to corporate bonds for institutional buyers such as banks and insurance companies. 

   

Seeking Tax-Free Income?

To provide investors the opportunity to invest in municipal bonds as they seek to benefit from a higher-inflation environment, Amundi US offers Pioneer AMT-Free Municipal Fund & Pioneer High Income Municipal Fund

Pioneer AMT-Free Municipal Fund seeks a level of current interest income exempt from federal income tax that is consistent with the relative stability of capital. Using a total return approach, the Fund invests primarily in investment grade municipal bonds and normally excludes securities, the interest on which is not subject to the federal alternative minimum tax (AMT).

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Pioneer High Income Municipal Fund seeks to maximize total return through a combination of income that is exempt from regular federal income tax and capital appreciation with an emphasis on managing downside risk. It aims to invest in the most attractive opportunities in the high-yield municipal bond market.

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Terms and Indices

The Bloomberg US Municipal Index is a measure of the USD-denominated long-term tax exempt bond market.

Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of June 30, 2022. 

A Word About Risk: Pioneer AMT-Free Municipal Fund

The market prices of securities may go up or down, sometimes rapidly or unpredictably, due to general market conditions, such as real or perceived adverse economic, political, or regulatory conditions, recessions, inflation, changes in interest or currency rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues or adverse investor sentiment. The market price of securities may fluctuate when interest rates change. When interest rates rise, the prices of fixed income securities in the Fund will generally fall. Conversely, when interest rates fall, the prices of fixed income securities in the Fund will generally rise.Investments in the Fund are subject to possible loss due to the financial failure of issuers of underlying securities and their inability to meet their debt obligations.The value of municipal securities can be adversely affected by changes in financial condition of municipal issuers, lower revenues, and regulatory and political developments. A portion of income may be subject to local, state, federal, and/or alternative minimum tax. Capital gains, if any, are subject to a capital gains tax. At times, the Fund's investments may represent industries or sectors that are interrelated or have common risks, making them more susceptible to any economic, political, or regulatory developments or other risks affecting those industries and sectors.

A Word About Risk: Pioneer High Income Municipal Fund

The market prices of securities may go up or down, sometimes rapidly or unpredictably, due to general market conditions, such as real or perceived adverse economic, political, or regulatory conditions, recessions, inflation, changes in interest or currency rates, lack of liquidity in the bond markets, the spread of infectious illness or other public health issues or adverse investor sentiment.Investments in high-yield or lower rated securities are subject to greater-than-average price volatility, illiquidity and possibility of default.The market price of securities may fluctuate when interest rates change. When interest rates rise, the prices of fixed income securities in the Fund will generally fall. Conversely, when interest rates fall, the prices of fixed income securities in the Fund will generally rise.Investments in the Fund are subject to possible loss due to the financial failure of issuers of underlying securities and their inability to meet their debt obligations.Prepayment risk is the chance that an issuer may exercise its right to prepay its security, if falling interest rates prompt the issuer to do so. Forced to reinvest the unanticipated proceeds at lower interest rates, the Fund would experience a decline in income and lose the opportunity for additional price appreciation.The value of municipal securities can be adversely affected by changes in financial condition of municipal issuers, lower revenues, and regulatory and political developments.A portion of income may be subject to local, state, federal, and/or alternative minimum tax. Capital gains, if any, are subject to a capital gains tax.The Fund may use derivatives, which may have a potentially large impact on Fund performance.

The views expressed regarding market and economic trends are those of the author and not necessarily Amundi US and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product.

Investing in mutual funds involves significant risks. For complete information on the specific risks associated with each fund, please see the appropriate fund’s prospectus or fact sheet, available on our  literature page.

Individuals are encouraged to seek advice from their financial, legal, tax and other appropriate professionals before making any investment or financial decisions or purchasing any financial, securities or investment-related product or service, including any product or service described in these materials. Amundi US does not provide investment advice or investment recommendations.

Before investing, consider the product's investment objectives, risks, charges and expenses. Contact your financial professional or Amundi US for a prospectus or summary prospectus containing this information. Read it carefully. To obtain a free prospectus or summary prospectus and for information on any Pioneer fund, please download it from our  literature section.

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