Best opportunity in a decade for municipal bonds

Nuveen bonds fixed income municipal funds

1 May 2024
| By Laura Dew |
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Nuveen is seeing opportunity in municipal bonds which are offering their highest yields since 2011.

In its most recent quarterly asset allocation update, the asset manager said it has moved from neutral to positive on high yield and is also seeing opportunities in private credit and municipal bonds. 

It specified higher quality segments of high yields offer compelling yields given credit fundamentals which are more attractive than US Treasuries and investment grade.

The firm said it favours municipals for the ongoing tailwinds from high demand, compelling yields and solid fundamentals, with state and local governments benefitting from high cash balances. Municipal bond yields are at their highest levels since 2011, the firm said.

Saira Malik, chief investment officer at Nuveen, said: “After a volatile 2023, stability is returning to the municipal market, and we expect that muni bonds will behave more like they have in the past – producing compelling income, offering solid credit fundamentals and benefiting from a good technical backdrop as investors pour money back into this asset class.

“Municipal bond yields started 2024 at their highest level since 2011. In this environment, investors may enjoy attractive total returns from income alone, a dynamic absent for almost 10 years.”

Anders Persson, fixed income chief investment officer, added: “Within the municipal bond market, we think it makes sense to adopt a longer-than-average duration stance now. The municipal bond curve is significantly steeper than the US Treasury curve, offering potential for current income as well as total returns when and if rates decline.

“Our key theme is flexibility and diversification across credit sectors versus over- or under-allocating to any one area. Within that context, however, we see more opportunities in high yield (especially the higher quality areas), which offers strong credit profiles and attractive yields, and in senior loans, which should benefit from a continued higher-for-longer rate environment.”

On the flipside, it has moved from positive to neutral on securitised assets and is neutral on US 10-year Treasuries, investment grade, emerging market debt and preferred securities.

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