Capitalize on a historic income opportunity with municipal bonds

Outlook 2023Capitalize on a historic income opportunity with municipal bonds

The municipal market historically has experienced outflow cycles during periods of persistent rising rates, and 2022 has been no exception. Due to the unique ownership structure in the asset class, persistent outflows normally cause the municipal markets to excessively underperform, which may result in significant opportunity for long-term investors.

Download Outlook paper Back to Outlook 2023

Listen to our podcast

After a difficult year, municipal bonds are back in the spotlight. Senior Trader, Bill Roach shares an update on the bond market and whether investors still have time to take advantage of this historic opportunity.

A historic tax-exempt income opportunity

The net result of the US Federal Reserve tightening cycle has been a significant increase in the yield available for investors who desire tax-exempt income. The market has reached yield levels not experienced in more than a decade.

When one looks at taxable-equivalent yields for municipal securities, investors have an opportunity to earn significant income, from a historical perspective. What makes this opportunity so compelling, in our view, is that, from a credit perspective, this is occurring at a time when municipal credit generally is as strong as it has been in decades.

Taxable-equivalent yields are more attractive than ever

Year-over-year taxable-equivalent yields for a AA-rated 30-year New York City Water municipal bond

Tax-equivalent yields are more attractive than ever chart

Sources: Municipal Market Data, Bloomberg, October 2022.

*Taxable-equivalent yield, calculated using the top federal income tax bracket of 37% plus 3.8% Medicare tax.

Earn more, keep more.
Think munis

Learn more

Turning insights into action

Investment solutions to consider

Delaware National High-Yield Municipal Bond Fund (DVHIX)

Overall Morningstar ratingTM

Morningstar rating Morningstar rating Morningstar rating Morningstar rating

A research-driven portfolio aimed to deliver a high level of income, with an emphasis on lower-grade, higher-yielding securities.

Learn more

Delaware Tax-Free USA Fund (DTFIX)

Overall Morningstar ratingTM

Morningstar rating Morningstar rating Morningstar rating Morningstar rating

A diversified portfolio designed to deliver a high level of tax-exempt income by taking advantage of opportunities across the yield curve and quality spectrum.

Learn more

Delaware Tax-Free USA Intermediate Fund (DUSIX)

Overall Morningstar ratingTM

Morningstar rating Morningstar rating Morningstar rating Morningstar rating

A shorter-term portfolio that emphasizes fundamental research in an effort to deliver competitive tax-free income with less interest rate sensitivity than longer duration strategies.

Learn more

Source: Morningstar. Data as of 9/30/2022 unless otherwise noted. Morningstar ranking is based on Morningstar risk-adjusted return measure that accounts for variation in a managed product's monthly excess performance. Past performance is no guarantee of future results.

Download Outlook paper Back to Outlook 2023

The views expressed represent the investment team’s assessment as of December 2022 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.

All charts are for illustrative purposes only. Charts have been prepared by Macquarie Asset Management unless otherwise noted.

© 2022 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

The Morningstar RatingTM for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three-year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods.

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

For financial professional use only. Not for use with the general public.

© 2023 Macquarie Management Holdings, Inc.

[2617446]