Displaying items by tag: munis

Municipal bonds have taken a significant hit after Donald Trump’s election as president, following a sharp selloff in U.S. Treasuries amid concerns over potential deficit-expanding policies and inflationary effects. 

Benchmark municipal yields spiked, echoing the Treasury market’s movements as investors reacted to the likelihood of Trump’s economic plans impacting inflation. Many state and local governments had already rushed to issue bonds before the election, leading to high issuance in October, but new sales were sparse this week. 

Despite the volatility, analysts like Lyle Fitterer of Baird predict bond issuance will recover in time, driven by the U.S.'s substantial infrastructure needs. A Republican victory also stirs concerns that tax cuts could reduce demand for tax-exempt municipal bonds, with JPMorgan analysts highlighting the risk to the tax-exemption status itself. 

Finsum: It’s also worth noting how inflation is going to potentially affect these assets, because there is strong chance inflation will increase under the new regime. 

This week’s muni bond selloff has created a buying opportunity, Wall Street strategists suggest. Following a selloff in U.S. Treasuries, muni yields rose sharply as economic strength tempered hopes for rate cuts. 

Despite a Thursday rally, the 10-year benchmark muni yield remains 26 basis points higher than its start-of-week level, marking one of the year’s steepest weekly declines. JPMorgan strategists see value at current levels, particularly with supportive market conditions anticipated in November. 

The iShares National Muni Bond ETF drew $362 million in inflows on Thursday, helping bolster the market. Barclays strategist Mikhail Foux expects favorable muni performance later this year, though he advises caution until rates stabilize.

Finsum: We think munis might present one of the best options in the bond market as rates begin their descent 

With a contentious U.S. election on the horizon, investors are bracing for potential market turbulence, but opportunities within the bond market are emerging. Fixed income, particularly municipal bonds, is poised for strong returns as real interest rates remain historically high, offering attractive yields. 

Municipal bond issuances have surged this year, driven by the need for infrastructure funding, creating a favorable entry point for investors. As demand increases and supply decreases later in the year, prices may rise, especially for long-term bonds.

Municipal bonds also present compelling value due to their strong credit profiles and tax advantages, offering stability in uncertain times. 

Finsum: Muni bonds provide an excellent option for tax-sensitive investors looking for a solid addition to their portfolios amidst market volatility.

As the Federal Reserve signals more rate cuts, long-term municipal bonds (munis) are becoming increasingly attractive due to their competitive yields, tax benefits, and potential for price appreciation. Historically, long-term munis tend to outperform when the Fed shifts from a hawkish to a dovish stance, benefiting from falling interest rates. 

These bonds also offer superior credit quality and often deliver higher tax-equivalent yields compared to taxable bonds, making them a strong alternative to Treasuries. With their longer durations, munis are particularly sensitive to rate changes, allowing for significant price gains in a falling rate environment. 

Moreover, the increased issuance of municipal bonds this year has created a favorable buying opportunity, especially as tax reforms and higher marginal rates could further boost demand for tax-exempt investments. 

Finsum: For investors looking to capitalize on rate cuts, long-term munis offer a compelling mix of yield, tax advantages, and credit stability

Major U.S. banks have continued to reduce their holdings in state and local government debt, decreasing their exposure by $3 billion in the third quarter. This trend was led by JPMorgan Chase and Bank of America, which together accounted for over half of the reduction. 

Other institutions, including State Street, Citigroup, and Morgan Stanley, also cut back on their municipal bond investments. This marks the third consecutive quarter of declining investments, the longest such retreat since 1996, driven largely by the reduced tax benefits following the corporate tax cuts. 

The banks' diminished demand has negatively impacted long-term municipal bonds, which have underperformed other maturities. However, the third-quarter reduction indicates a slower pace of the overall pullback compared to earlier in the year.

Finsum: Now might be an opportunity for those seeking value to consider munis as they are getting such little attention.