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.