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Chart Talk: Opportunities in Municipal Bonds and Global Fixed Income Flip Book: 4Q 2020
The municipal bond market themes/predictions for 2021
- 2021 will be a transition year as we seek an end to the coronavirus outbreak. The path to normalization will be long but ultimately successful.
- The Federal Reserve and U.S. Treasury will work together to support the markets, benefiting municipals.
- Monetary stimulus and low rates should boost economic activity as conditions stabilize.
- Inflation will remain low as labor productivity increases.
- Treasury yields will increase moderately, but the effect on municipals will be cushioned by yield spreads and the scarcity of tax-exempt bonds in light of a growing proportion of taxable municipals.
- The importance of the underlying municipal projects typically stabilizes the underlying credit for the investor.
- Downgrades and defaults will be lower than expected, and clarity on credit health will lift investor confidence.
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