Municipal bonds have outperformed fixed income sectors

Municipal bonds have outperformed fixed income sectors

Driven by tax-exempt yields at levels not seen in more than a decade and favorable technical factors, municipal bonds have outperformed other fixed income asset classes over the 5-year period ended March 31, 2024. When taking taxable-equivalent yields into consideration , the below-investment-grade category, or high yield, has been the strongest-performing asset class in fixed income over the period.

Taxable-equivalent high yield municipal returns outperform all taxable fixed-income indices represented

Annualized total return, %

5 years ended March 31, 2024

Source: Morningstar Direct, March 31, 2024. Taxable equivalent returns are assuming 37% tax bracket and 3.8% Medicare tax. The performance quoted represents past performance and does not guarantee future results. Chart is for illustrative purposes only.

What this means for Investors

High yield municipals may offer favorable income and return potential. The picture can be even more attractive when one considers the taxable-equivalent yield advantage. What makes this opportunity so compelling, in our view, is that, from a credit standpoint, this is occurring at a time when municipal credit is generally as strong as it has been in decades.

For investors considering an allocation to municipal bonds or putting additional money to work in the asset class, it may be beneficial to consider an actively managed approach that incorporates high yield bonds.


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Past performance does not guarantee future results.

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The Bloomberg Asset-Backed Securities (ABS) Index measures the performance of the ABS component of the Bloomberg US Aggregate Index.

The Bloomberg Eurodollar Index contains US dollar-denominated securities that are registered outside the US (except for global issues that can be SEC-registered).

The Bloomberg High-Yield Municipal Bond Index is composed of US dollar-denominated, non-investment-grade, tax-exempt bonds for which the middle rating among Moody’s Investors Service, Inc., Fitch, Inc., and Standard & Poor’s is Ba1/BB+/BB+ or below.

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

The Bloomberg Taxable Municipal Bond Index is a rules-based, market-value-weighted index engineered for the taxable municipal bond market.

The Bloomberg US Agency Index is composed of publicly issued debt of US government agencies, quasi- federal corporations, and corporate or foreign debt guaranteed by the US government. The largest issuers are Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System (FHLB).

The Bloomberg US Aggregate Index is a broad-based benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.

The Bloomberg US Corporate Bond Index is composed of US dollar-denominated, investment grade corporate bonds that are US Securities and Exchange Commission (SEC)-registered or 144A with registration rights, and issued by industrial, utility, and financial companies. All bonds in the index have at least one year to maturity.

The Bloomberg US Corporate High-Yield Index is composed of US dollar-denominated, noninvestment grade corporate bonds for which the middle rating among Moody’s Investors Service, Inc., Fitch, Inc., and Standard & Poor’s is Ba1/BB+/BB+ or below.

The Bloomberg US Mortgage-Backed Securities (MBS) Index measures the performance of agency mortgage-backed pass-through securities (both fixed-rate and hybrid adjustable-rate mortgage) issued by the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Association (Freddie Mac), and Government National Mortgage Association (Ginnie Mae).

The Bloomberg US Treasury Bills Index measures the performance of US Treasury bills that are not US Aggregate-eligible and have a maturity between 1 and 12 months.

The Bloomberg US Treasury Index measures the performance of US Treasury bonds and notes that have at least one year to maturity.

The Dow Jones Industrial Average is an often-quoted market indicator that comprises 30 widely held US blue-chip stocks.

The NASDAQ Composite Index is a broad-based, market capitalization weighted index that measures all Nasdaq US-, and international-based common type stocks listed on The NASDAQ Stock Market and includes more than 2,500 securities.

The Russell 2000 Index measures the performance of the small-cap segment of the US equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index, representing approximately 10% of the total market capitalization of that index.

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.

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