Overall, municipal bonds continue to be a favorable fixed income option here at BlackRock, as noted in our Mid-Year Outlook. Munis remain a high-quality asset class offering yields that today rival those of Treasuries and many corporate bonds before tax — and look even better after. Caution is warranted after the market’s more than 6% gain through July, but in our estimation, that does not diminish munis’ appeal.
Market Realist – The graph above shows the year-to-date performance returns of various Barclay’s indices tracking U.S. Treasuries (TLT)(IEF), U.S. Treasury Inflation Protections Securities (TIP), U.S. Aggregate Bonds (BND), U.S. High Yield Bonds (HYG)(JNK), and muni-bonds (MUB).
Municipal bonds have outperformed all the other indices this year. You can largely attribute this trend to the shortfall in supply and increased demand for muni-bonds on account of the low interest rates prevailing in the markets. The other factor for low borrowing by states could be the mid-term elections in November, where 28 incumbent governors are up for re-election and hence are less inclined to borrow.
According to BlackRock, the municipal bond market is likely to remain strong this year. The housing market is improving, which is giving much-needed stability to state budgets. The outlook seems to be favorable and municipal bonds could turn out to be good investment opportunities for investors.
Read our series Why investors should consider municipal bonds despite Puerto Rico to learn more.