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Muni Bonds: Extreme Valuations Create Opportunity

April 2020 

Volatility in the municipal-bond market has created a historic valuation advantage not seen since the global financial crisis.

From our sub-adviser, Wellington Management
Brad W. Libby
Managing Director, Fixed-Income Portfolio Manager and Credit Analyst


Municipal Bonds Offer Compelling Value

The municipal-bond market has been rattled by extreme market volatility caused by the coronavirus outbreak, leaving extreme valuations in its wake. The municipal/Treasury ratio, a common measure used to gauge the attractiveness of municipals (munis), reached approximately 350% relative to the long-term average of 84%, placing it in the first percentile—a historic valuation advantage relative to taxables not even reached during the global financial crisis (GFC). For spread product, both tax-exempts and taxables widened significantly. Similarly rated taxable munis and corporates are now trading at wide levels on par with each other, even though most consider taxable munis a higher-quality asset.

Important Risks: Investing involves risk, including the possible loss of principal. • Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. • Municipal securities may be adversely impacted by state/local, political, economic, or market conditions. Investors may be subject to the federal Alternative Minimum Tax as well as state and local income taxes.

WP530   217237