Top of the Morning: Municipal Market Guide - Investing in Quality Water Bonds
Jan 25, 2024
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Kathleen McNamara discusses the strong performance of tax exempt municipal bonds, predicts positive outlook for municipal market. Highlights stability and security of investing in water and sewer bonds, recommends investing in well-established issuers with strong reserves.
The tax-exempt municipal bond market experienced a 6.5% increase in 2023 due to a strong rally in November and December, countering significant losses from the previous year.
Investing in high quality water and sewer bonds in the municipal market provides stability and reliable returns, with only two defaults in the last 52 years, making them an attractive option for investors seeking safety and revenue generation.
Deep dives
Muni Performance in 2023
In 2023, the tax-exempt municipal bond market performed much better than expected, with a 6.5% increase in the year. This was due to a robust rally in November and December, which countered the significant losses from the previous year. Despite volatility, the benchmark yields finished the year close to where they started. According to the UBS Chief Investment Office, Munis are expected to have positive returns in 2024, with lower benchmark treasury yields.
Investing in Quality Water Bonds
The spotlight article of the podcast focuses on the high quality water and sewer sector in municipal bonds. This sector is considered one of the safest in the municipal market, with only two defaults in the last 52 years. Water and sewer utilities have stable financial performance, as they provide essential services and have the ability to raise revenue. However, high inflation and drought conditions pose risks. It is recommended to invest in large, established issuers with diverse client bases and strong reserves. Double-A rated water and sewer bonds currently yield about 3.3% for 15 years, making them a good value for investors seeking high quality bonds.
We continue with our series of muni market conversations by reviewing YTD asset class performance, as well as some portfolio themes. We also spend time on outlining the investment case for high quality water and sewer bonds. Featured is Kathleen McNamara, Senior Municipal Strategist Americas, UBS Chief Investment Office. Host: Daniel Cassidy
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