Does a recession mean underperformance for municipal bonds? Think again

During recessionary years of the past four decades, municipal bonds generated positive returns in all but two of them. One of those down years was 1981 – but in 1982, the second year of that inflation-fueled recession, municipals returned more than 40%. The other down year was 2008, when the Bloomberg Barclays Municipal Bond Index declined 2.47%. That same year, stocks in the S&P 500® Index fell 37%.*

Municipal bonds historically stay the course in up and down markets

Bloomberg Barclays Municipal Bond Index (1981 – September 2019)

Barclays live data

Source: Barclays Live. Data as of Sept. 30, 2019.

What this means for investors:

Delivering an average annual return of 7.3% during the four-decade period illustrated above, municipal bonds have stayed the course across market cycles, and we believe they can add significant diversification potential within an overall portfolio over time.

*Source: Morningstar Direct.

The views expressed represent the investment team's assessment of the market environment as of November 2019 and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice.

Past performance does not guarantee future results.

Investing involves risk, including the possible loss of principal.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.

The Bloomberg Barclays Municipal Bond Index measures the total return performance of the long-term, investment grade tax-exempt bond market.

The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the US stock market.

Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

Diversification may not protect against market risk.

All third-party marks cited are the property of their respective owners.

Nothing presented should be construed as a recommendation to purchase or sell any security or follow any investment technique or strategy.


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