UBS On-Air: Market Moves Top of the Morning: Muni markets - Policy matters
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Feb 17, 2025 Sadiq Makarajee, a Fixed Income Strategist at UBS, shares his insights on the current state of the municipal bond market. He discusses the potential impacts of federal policy changes on municipal investments and the significance of tax exemptions. The conversation dives into the booming municipal ETF market, the growing interest in high-yield bonds, and strategic investment approaches in today’s fluctuating landscape. Makarajee emphasizes navigating quality and risk while staying updated on economic influences.
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Economic Outlook and Muni Market
- Policy uncertainty, especially tariffs, increases inflation risks and downside risks to growth.
- Despite this, the economy is expected to remain resilient, leading to lower treasury rates by year-end.
Muni Bond Investment Strategy
- Maintain a barbell preference with 2-5 year AAA bonds and 7-30 year bonds, split evenly.
- Favor higher-quality credits, especially for longer durations, but consider some BBB and high-yield for shorter terms.
Credit Spread and Bond Selection
- The risk-reward for BBB and high-yield bonds is unattractive except for short maturities.
- Use tight spreads to move from lower-rated hospital bonds to higher-rated transportation bonds.