UBS On-Air: Market Moves Top of the Morning: Muni Market - A sigh of relief
May 20, 2025
Sudip Mukherjee, Fixed Income Strategist Americas at UBS Chief Investment Office, offers a deep dive into the municipal bond market, highlighting a recent rally driven by improving technicals and renewed inflows. The discussion touches on appealing tax-equivalent yields and the implications of proposed changes to the SALT cap. Legal battles over sanctuary city funding are explored, revealing financial strains and judicial responses. Listeners gain valuable insights into navigating this complex landscape as summer approaches.
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Tax Exemption Relief Boosts Munis
- Municipal markets sighed in relief as the House Ways & Means Committee tax plan left the tax exemption intact.
- This reduction in policy uncertainty has reversed April's steep sell-off, improving muni yields and inflows.
Muni Yields Attractive Despite Risks
- Treasury yields may rise short term due to Moody's US downgrade but won't cause major muni sell-offs.
- Tax equivalent yields near 6.8% and steep curves favor long maturities despite policy uncertainties.
Barbell Strategy in Munis
- Favor a barbell maturity structure in munis, focusing on 3-7 years and 70-30 years segments.
- Choose higher coupon bonds (5-6%) as they performed better during sell-offs than lower coupons.