This year proved a difficult one for bonds as the Federal Reserve aggressively hiked rates for much of the year. With the rate narrative changing moving into 2024, investors moved back into bonds in a big way beginning in October, including municipal bonds. Alexa Gordon of Goldman Sachs and Jonathan Mondillo of abrdn discussed the performance of muni bonds this year as well as opportunities heading into 2024 at VettaFi’s 2024 Market Outlook Symposium.
Attendees were asked if they believed municipal bonds are attractive compared to U.S. Treasuries. Of the advisors participating in the survey, 78% reported they believe municipal bonds are attractive in comparison.
It’s an insight that reflected the majority of this year’s muni performance according to Alexa Gordon, PM and head of muni ESG at Goldman Sachs. In an environment of rising interest rates, munis offered outperformance compared to U.S. Treasuries. There are still tailwinds for munis heading into the new year, particularly given low supply and high nominal rates.
“I think there’s a real potential for munis to continue to get more attractive as we head into 2024,” Gordon explained.
Both Gordon and Jonathan Mondillo, head of U.S. fixed income at abrdn, agree that municipal bond attractiveness depends greatly on the time frame. Currently, Mondillo sees less opportunity in high-grade municipal bonds compared to U.S. Treasuries.
“When we dip down into… single A-rated municipals, BBB-rated municipals, and you look at it on a spread basis after tax, we think things look extremely attractive,” said Mondillo.