Where is the Value in the Municipal Market?

The municipal market is one of the most diverse sectors available to fixed income investors. Taxable and tax-exempt issues have maturities encompassing the full range of the maturity curve. Credit quality ranges from non-rated all the way up to AAA. Perhaps you should have some exposure to this asset class, as the municipal sector has something for every investor. The trick is determining what you want to own.

 

Negative headlines have hurt the municipal market over the past few years. Previous negative comments from financial analysts and hedge fund managers about the credit worthiness of municipals and Detroit’s more recent headline-grabbing default have shaken some investors’ confidence about the quality of the asset class. Concerns surrounding unfunded pension liabilities within the municipal sector add to quality concerns. While these concerns should be evaluated, it should also be considered that few defaults have occurred in this very large sector. Of the few defaults, most of the credit quality issues (e.g., Detroit) have been well known for a long period of time. Rarely does the credit quality of a municipality fall quickly. We advise against letting a few “bad” municipal issuers deter you from finding value within the sector.

 

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Contributed by: John R. Smith
Senior Portfolio Manager, Detalus Advisors