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The Long View
Jim Murphy and Charlie Hill: ‘The Value Proposition for Municipal Bonds Has Rarely Been Stronger’
Nov 12, 2024
Jim Murphy, a high-yield muni strategies expert at T. Rowe Price, and Charlie Hill, who manages several short and intermediate-term municipal funds, discuss the current landscape of municipal bonds. They dive into recent market turbulence and highlight how a 50 basis point rate cut could create new investment opportunities. The duo analyzes credit spreads, emphasizing the resilience of not-for-profit hospitals post-COVID, and explore the potential of high-yield municipal bonds in diversifying portfolios while maintaining low default risks.
53:30
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Quick takeaways
- The municipal bond market is stabilizing with historically high yields and strong credit quality, driven by effective federal support for local governments.
- Professional management of municipal bonds is advantageous for investors as it provides better risk management and tax efficiency compared to holding individual bonds.
Deep dives
Market Volatility and Recovery in Municipal Bonds
The municipal bond market has experienced significant volatility over the past few years, particularly influenced by events such as the pandemic and subsequent interest rate hikes. Prior to 2020, the market was relatively calm, characterized by low rates and narrow quality spreads, which shifted dramatically as COVID-19 hit, resulting in a flight to safety. The Federal Reserve's actions post-COVID helped restore confidence and led to a robust recovery in 2021, but 2022 brought another reset in interest rates in response to inflationary pressures. As of 2024, the market seems to be stabilizing, with current rates at a 10 to 15 year high and strong credit quality among issuers, largely due to federal support that helped local governments maintain healthy fiscal conditions.
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