Municipal bonds: Perspective from the past

Over the past 20 years, municipal market returns have seen only three years of negative returns and never two consecutive down years. The chart below illustrates this trend.

Currently, the Bloomberg Barclays Municipal Bond Index has returned -0.97% year to date (as of Nov. 15, 2018), which could result in 2018 being the fourth down year during this 20-year period. However, based on the historical trends illustrated in the chart, the municipal market has tended to see a significant bounce back after a down year. The annual return following each of the three previous down years, on average, saw a 13.5-percentage-point increase from the previous year, leading us to have a positive outlook on the municipal markets in 2019.

Expand Collapse
 

Source: Bloomberg.

The performance quoted represents past performance and does not guarantee future results. Chart is for illustrative purposes only.

What this means for investors:

Municipal bonds play an important role in taxable portfolios by providing downside protection, as well as generating income. Finding a risk-conscious manager with the resources and flexibility to weather challenging markets could help you reach your investment destination.

To help you along your investment journey, Define Your Destination and find out what your investments can help you achieve.


The views expressed represent the Manager's assessment of the market environment as of Nov. 15, 2018 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. Views are subject to change without notice and may not reflect the Manager's views.

IMPORTANT RISK CONSIDERATIONS

Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

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 high yield secondary market is particularly susceptible to liquidity problems when institutional investors, such as mutual funds and certain other financial institutions, temporarily stop buying bonds for regulatory, financial, or other reasons. In addition, a less liquid secondary market makes it more difficult for the Series to obtain precise valuations of the high yield securities in its portfolio.

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

High yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds.

The investment may also be subject to prepayment risk, the risk that the principal of a bond that is held by a portfolio will be prepaid prior to maturity, at the time when interest rates are lower than what the bond was paying. A portfolio may then have to reinvest that money at a lower interest rate.

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

Subscribe

Subscribe to hear from our portfolio managers and analysts on trending topics

I'm interested in hearing from:
Or select:

Subscribe to Insights

Thank you for your subscription!

Top charts of the month