Are municipals on track to bounce back?

Over the past 22 years, the high yield municipal market has seen only four years of negative returns, with 2020 possibly on track to be the fifth. Despite the current market volatility, we look to historical trends for perspective on potential future returns.

The chart below shows that the high yield municipal market tended to see a significant bounce back after a down year (noting that 2007 rolled into the 2008 global financial crisis) with double-digit returns in some cases. While the verdict is still out for 2020, could the high yield municipal market be on track to bounce back in 2021?

Bloomberg Barclays High-Yield Municipal Bond Index­
Total return

are municipals on track to bounc back - graph

Source: Bloomberg. Data as of April 22, 2020.

Past performance does not guarantee future results. Charts shown throughout are for illustrative purposes only and not meant to predict actual results. Chart is for illustrative purposes and not representative of the performance of any specific investment.

What this means for investors:

While we cannot predict when the current volatility will end, we believe that price deterioration has led to attractive long-term opportunities. In our view, the environment that exists after this pandemic has subsided will likely be one of lower rates for longer and provide potential for opportunity within the high yield municipal market.


The views expressed represent the investment team’s assessment of the market environment as of the date indicated 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.


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.

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

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 Fund to obtain precise valuations of the high yield securities in its portfolio.

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.

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