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5 Compelling Reasons to Consider an Investment in Munis Today

Watch Group CIO Dan Ivascyn discuss the five factors driving value in municipal bonds today.

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Text on screen: PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized.

Text on screen: Daniel J. Ivascyn, Group Chief Investment Officer

Ivascyn: After a really, really tough 2022, where we saw muni yields rise and in some cases, particularly up the yield curve, rise quite sharply, we see a lot of value within the municipal and the tax free investing space.

Text on screen: 1. High yields

Images on screen: Suspension and arch bridge construction

Number one, yields are quite high in a historical context, slightly off the absolute highs we saw a few months ago, but still very, very attractive from a long term perspective. Then the really good news, of course,

Text on screen: 2. Declining inflation

Images on screen: Products scanned at a grocery store

is that inflation is beginning to decline. A more subtle point within the municipal market versus the taxable market is that you still have

Text on screen: 3. Steep yield curves

Images on screen: Large building construction site

quite steep yield curves, meaning by buying longer maturity municipal bonds, you pick up a significant relative yield advantage versus what you see in the taxable space.

Given the significant economic uncertainty, there is the ability to leverage the fact that municipal bonds, both at the investment grade level as well as the high yield segment of the distribution, have typically been much more

Text on screen: 4. Resilient credit performance

Images on screen: Overpass and highway construction

resilient from a credit performance perspective. And then finally, a lot of municipalities, even some of the areas of the market with lower ratings,

Text on screen: 5. Strong initial conditions

Images on screen: Underground water supply construction

have pretty strong initial conditions. So bottom line, I know it’s been a rocky road for interest rate sensitive segments of the opportunity set, but we do think that opportunities are looking a lot brighter, both from a yield and a total return perspective across this asset class.

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Text on screen: PIMCO

Disclaimer


Past performance is not a guarantee or a reliable indicator of future results.

Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Income from municipal bonds is exempt from federal income tax and may be subject to state and local taxes and at times the alternative minimum tax.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision. Outlook and strategies are subject to change without notice.

PIMCO does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions and concerns.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world. ©2023, PIMCO.

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