Potential Opportunities in the Muni Bond Market

In sailing, a good captain understands how to effectively position their boat to take advantage of changing tides and currents. This is an apt analogy, in our view, for municipal bond investors, because although the surface of the water may not look that much different, the environment below the surface has shifted quite a bit recently.

Over the past few months, there have been three major themes that have emerged in the municipal bond market:

  • Attractive absolute yields;
  • Low relative yields that are likely here to stay for the near future;
  • Credit quality that has peaked but should remain resilient.

Municipal bonds, or munis, are issued by cities, states, and local governments and often pay interest income that is exempt from federal income taxes and potentially state income taxes if purchased from an issuer in your home state. As a result of their tax benefits, they tend to be an attractive option for high-income earners looking for more conservative investment choices.