Positive Signs for Municipal Bonds

Tuesday 05 September 2023

Investment Talks

   

Positive Signs for Municipal Bonds

August 2023 | From Q1 through Q3 of 2022, the municipal bond market experienced a sell-off unprecedented in over 40 years, with the Bloomberg Municipal Bond Index falling more than 12%. Since that time, the market has recovered somewhat, returning 6.42% from 9/30/2022 through 8/10/2023. Much of the 2021/2022 sell-off was driven by macro factors such as persistent inflation and the US Federal Reserve’s aggressive measures to tame it, while some of the pain was self-inflicted as investors hit the panic button – leading to over $115 billion of outflows. In our opinion, very little, if any, of the sell-off was due to fundamental concerns, and investors should consider this potential opportunity.

01 |  After a historic sell-off and only a partial recovery, we believe strong fundamentals support a positive outlook for municipal bond markets.

02 | We believe that high rainy day fund balances, federal support, and a lack of leveraging have left many state and local governments in a strong position.

03 | Historically, tax exemptions have tended to become more valuable with higher levels of interest rates.

Potentially Positive Signs for Municipal Bonds

Important Information

Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of July 31, 2023. Diversification does not guarantee a profit or protect against a loss. 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. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results. Amundi Asset Management US is the US business of the Amundi Asset Management group of companies.

Other news

IT-Capturing the Momentum
06/03/2024 Investment Talks

Capturing the Momentum of a Narrowing Earnings Gap

Since early 2023, a handful of the market's top stocks, including the Magnificent Seven, have surged in earnings and valuation, and have dominated returns. Underneath the surface of today's concentrated, crowded market, sharp earnings recoveries may soon play out and structural changes may occur in many industries, creating new winning and losing stocks. Separating the potential winners from the rest of the market will be key to portfolio success over the next year, and beyond. With so much uncertainty and variability across industries and companies, we believe active management is essential to capturing the momentum of a changing market.  

IT-Going Global wEquities
05/15/2024 Investment Talks

Going Global with Equities - May 2024

Due to factors, including significant stimulus and hopes over artificial intelligence, a handful of the top US stocks are experiencing significantly high valuations. While US investors should continue to have exposure to domestic stocks, the outlook for international stocks appears to be improving. With global valuations unjustifiably low, a potential recession ahead, and top US stocks currently posting excessive valuations, investors may wish to consider expanding the global reach of their portfolios to  opportunities in Europe and Asia.

IT-Opportunities-Catastrophe
05/07/2024 Investment Talks

Opportunities in Catastrophe Bonds

As a structurally uncorrelated source of risk and return, we believe catastrophe bonds and insurance-linked securities (ILS) may permit investors to build more diversified and resilient portfolios.  This could be particularly true now, as the rate on line (the ratio of premium paid to loss recoverable in a reinsurance contract) for private ILS formats and the cat bond market spread remain elevated and could provide attractive total yield potential.  We believe the combination of continued elevated pricing, combined with the ongoing demand for reinsurance, may present an attractive investment opportunity throughout the remainder of 2024 and into 2025.