The eventual return of municipal market performance is likely indisputable the only question is when. Looking ahead, we believe the long-term prospects of municipal bonds remain compelling. This supply constraint may increase the likelihood of solid performance in 2023. However, in the current environment, demand for tax-exempt income is expected to outpace the supply of new municipal issuance.
In 2022 we saw massive outflows from the muni space and severely muted supply. Past performance is not a guarantee of future results. Source: Municipal Market Analytics, as of 12/31/22. In fact, there were no new rated municipal bond defaults during the period of significant market stress in 2021 resulting from COVID. In addition, while they may have become more common over the past 15 years, municipal defaults and bankruptcies remain rare overall. State tax revenue has recovered and is now higher than its pre-pandemic trajectory. In more good news for muni investors, the report noted that the sector continued to recover from the effects of COVID-19. municipal bond defaults, and recoveries, 1970-2021, with updates through 2021. This was reaffirmed in Moody’s Investors Service’s annual municipal bond market snapshot, U.S. Low default rates are a hallmark of the municipal bond asset class. Muni Bond Default Rates Low and UnLikely to Substantially Increase in 2023 states and territories, and their political subdivisions, in the U.S. dollar denominated investment grade tax-exempt debt publicly issued by U.S. Based on the ICE US Broad Municipal Index, which tracks the performance of U.S. Strong Recovery Historically Followed Down Years for Investment Grade Municipal Bonds And dating back to 1989, a down year in the municipal bond market has been followed by at least one year (or several) of positive returns. However, yields are now higher for muni bonds than at any other time in the past 15 years. Darkest Before the Dawn: A Bright Outlook for Municipal BondsĪlong with other fixed income asset classes, 2022 was a rough year for municipal bonds. Highlights from their discussion are below. On a recent webinar, Michael Cohick, Director of Product Management, and Tamara Lowin, Senior Municipal Credit Analyst, shared their outlook for municipal bonds in 2023.
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