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Explore our investment optionsMuni fundamentals continue to be strong
Near the midpoint of 2023, the positive fundamental backdrop across states remains durable.
Finding opportunity in a solid muni market
Portfolio Managers Garrett Hamilton, CFA, and Paul Drury, CFA, discuss the state of the municipal bond market and current opportunities.
While AAA Muni/UST ratios remain slightly rich on short- and longer-term bases, we continue to find strong relative value opportunities in A, BBB, and BB cohorts.
Sources: Bloomberg, Putnam. Data as of 7/12/23.
Current tax rates may have only a two-year horizon ahead.
The landmark Tax Cuts and Jobs Act (TCJA) is scheduled to sunset in 2025. Congress might not act to extend it.
Read our blog to begin thinking ahead for tax planning.
Our muni credit team researches the market from multiple angles with a disciplined process (see Research focus for more).
Some of this team's current market observations:
Favorable rainy day reserves and below-average defaults in 2022
Recovering from 2022 weakness, outflows trending down
Attractive entry points into the market and high taxable-equivalent yields
With high levels of reserves, the state and local revenue sector is better positioned for a recession compared with previous economic cycles.
*Five-year average cumulative default rates, all rated securities. Source: Moody's, U.S. Municipal Bond Defaults and Recoveries, 1970–2021 (April 2022), most recent data available.
- State and local tax receipts fell 4% in Q1 2023. That said, overall revenues remain 28% above 2019 levels, and “Rainy Day Funds” are near all-time highs.
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Rainy day funds reached highest level in 30 years, at 12% of revenue - Most large pensions began 2022 in the best fiscal shape in a decade
- Defaults continue to run below average
There were zero defaults in March 2023.
Latest fixed income and macro insights
Fed's quantitative tightening (QT) will face constraints
The Fed is pursuing QT while being careful to avoid market disruption. Compare scenarios for QT and markets in Putnam's Macro Report.
The debt ceiling is raised, but the debt problem persists
As inflation sticks around, it is important to think about how it is related to high government debt.
Contracting money supply poses risk to bonds
A contracting money supply paired with the Fed's quantitative tightening is adding bank sector stress on Treasury and MBS markets.
Economic imbalances could mean deep recession or sticky inflation
A deep recession could have a significant impact on financial markets.
Inflation demands Fed's focus as bank lending tightens
Even as bank lending tightens, the Fed may still need to keep rates high for longer to bring down inflation.
The Fed walks a line between inflation and financial stability
Given the fragilities in financial markets, the Fed will likely move cautiously in monetary tightening to fight inflation.