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Investment strategy
July 16, 2021
2 mins

Improving state budgets make municipal bonds attractive

July 16, 2021
2 mins
Charlie Reinhard
Investment Strategist, North America
SUMMARY

Year-to-date, municipal bonds have recorded strong flows but yields and ratios versus Treasuries are historically low. We believe this is where patience is advised.


  • Municipal bonds have returned 2.1%, with strong flows and improving state budget estimates, in the year to-date. Leadership has come from airports, transportation, and hospital bonds, A-rated or lower issues, and longer-duration 12+ year maturities.
  • Muni yields and ratios versus Treasuries are historically low. But even if yields rise and ratios mean revert, on a rolling 60-month basis, municipal bonds have an admirable record of positive performance. So, a bit of patience is advised.
  • Historically, Municipal bond defaults have been rare. In US Municipal Bond Defaults and Recoveries, 1970-2017, the cumulative default rate for all rated Municipal bonds was just 0.09%.
  • Short-term, cash coming to investors from bond maturities and redemptions should exceed new issuance and returns have been robust in the summer months.
  • Municipal issues finance hospitals, education, clean water, low-income housing, public transit, renewable energy and more.
  • ESG investors should also note that a study of $23 billion in new issuance found that green and non-green bonds priced to identical yields.

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