Manager perspectives

Munis bounce back with high yields, strong fundamentals

October 06, 2022


Meet the experts

Paul Malloy
Mathew Kiselak
2022 is shaping up to be a challenging year for municipal investors. What’s your take on the current market environment and are we through the worst of it?
How do you feel about municipal bond valuations relative to other fixed income sectors?
Earlier this year, muni managers faced a major outflow cycle. What are your thoughts on where we stand now? When do you think sustained inflows into muni mutual funds will return?

Bad timing: Muni investors, trying to time the market, tend to sell when yields are most attractive

A line chart displays the cycle of muni fund outflows and municipal yields from 2013 through September 21, 2022. In the six major outflow cycles shown, muni fund outflows were greatest when municipal yields were at their cycle peak.
Let’s turn toward muni market fundamentals. With the amount of fiscal stimulus given directly to municipalities or collected through taxes, the past few years have given them a great opportunity with excess funds. How has this money been used, and do you believe they are making the most of this opportunity?
That sounds like a constructive statement overall. What if we experience a recession? How should we expect this market to respond to a 2023 recession, as many predict will occur?
Not all municipal bond strategies are the same. What’s your approach to investing, and what makes your approach unique or more effective? Have the events of this year changed your strategy, or have they reaffirmed it?
With all these things in mind, where does Vanguard see the most opportunity in this market? What has been a major focus for the portfolio managers in terms of positioning?
Let’s sum this all up. How would you frame the overall investment environment for municipal bonds for individuals seeking tax-exempt income?
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