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Municipal Bonds

Stability + Reserves + Yields = Opportunities in Munis

Eve Lando, JD
Portfolio Manager and Managing Director
12 Oct 2023
3 min watch

Munis are attractive again as Investors are finally getting paid with higher yields and the tax advantage. However, diligent research sets active managers apart.

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Stability + Reserves + Yields = Opportunities in Munis

What areas of opportunity do you see in the muni market?

Value. Three points in favor of munis as of today and going forward: stable sector, reasonable reserves, and very attractive yields.

First, we are a stable sector. We invest in essential service providers, school districts, state governments, etc. The impact should be less in a hard or soft landing than for other capital market borrowers.

Second, municipal borrowers have done well building up their reserves – through prudent management for some and plenty of COVID funds. For most, we’re talking about reserves that are twice as high as compared to the 2008 period, just before the Great Recession.

Last but not least, investors are getting paid, finally. Both on an absolute and relative basis – we see AAA-rated housing deals with yields as high as 4.25% inside 10 years.  We also see credit spreads finally widening – investors are getting paid to add on sectors such as healthcare and pre-paid gas. We are back to historical spread levels, and things look attractive.  And also on a relative basis – compare us to the corporate sector – munis look good, even great.

But remember, our team at Thornburg achieves this through careful and diligent credit research. Buy but also sell discipline is important, careful selection & surveillance of ultimate borrowers, identifying parts of the curve that add value, all that work as opposed to simply managing passively to an index.

Important Information

The views expressed are subject to change and do not necessarily reflect the views of Thornburg Investment Management Incorporated. This information should not be relied upon as a recommendation or investment advice and is not intended to predict the performance of any investment or market.

This is not a solicitation or offer for any product or service, nor is it a complete analysis of every material fact concerning any market, industry, or investment. Data has been obtained from sources considered to be reliable. Thornburg makes no representations as to the completeness or accuracy of such information and has no obligation to provide updates or changes. Thornburg does not accept any responsibility and cannot be held liable for any person’s use of or reliance on the information and opinions contained herein.

Investments carry risks, including possible loss of principal.

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For Australia: Thornburg holds a foreign AFSL 526689.

For Hong Kong: This article is issued by Thornburg Investment Management (Asia) Limited (“Company”), a wholly-owned subsidiary of Thornburg Investment Management, Inc. The Company is currently licensed with the Hong Kong SFC for Type 1 and Type 9 regulated activity, with the CE No.: BPQ208.

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