Three factors driving High-Yield municipal bonds | Lord Abbett
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Fixed-Income Insights

Lord Abbett Portfolio Manager Greg Shuman discusses the key factors driving success for High-Yield municipal bonds.


My name is Greg Schumann. I'm a portfolio manager on the Municipal Bond team at Lord Abbett.

Title: Three factors driving High-Yield municipal bonds

For 2021 we've had a very, very strong year so far for the high yield muni-market. A lot of that's been driven by a couple of factors.

Title: 1. Macro-economic backdrop

Number one is the macroeconomic backdrop; more specifically, the direction of interest rates, as well as any sort of developments that might happen that could impact equities, as the rebalancing effect has driven a lot of demand for fixed income over the course of the year and that's been a very positive technical for the market.

Title: 2. Infrastructure and fiscal policy

The second factor that's going to drive performance over the final quarter here and in 2021 will likely be the impact of infrastructure and fiscal policy. So the two are right now aligned where we're going to see an increase in infrastructure spending and that can have an impact from a number of factors. It can have an impact on the supply side, so we potentially there's a lot of different agenda being passed around, but more than anything we have we have a basic framework where we know that there's potential for higher supply both through the reinstatement of tax-exempt advance for funding, as well as the potential for a BAB-like program, as well as the potential for further infrastructure spending and monies from the Federal Government. And on the backside of that, we have the potential for greater demand driven largely by the fact that taxes, both on the corporate and potentially the less likely on the individual side, are going to more than likely increase which would make the asset class more attractive on a relative basis for investors.

Title: 3. Strong performance of credit fundamentals

Factor number three has been the continued strong performance of the credit fundamentals. So if you think about last year they had a very low bar to go over, because people anticipated that things were going to be very, very negative for the municipal bond market.

Not only have they outperformed on a fundamental basis, revenues have come in well in excess of what people anticipated, the economy has outperformed most people's anticipation, but they've also received significant federal aid through the Cares Act and the American Rescue Plan. So lots of funding has flowed to these states, municipalities, and revenue bond issuers and they're entering the final quarter of the year, in very strong shape and likely are going to continue to perform well.


Thank you for watching and thank you for your continued interest in Lord Abbott.


Unless otherwise noted, all discussions are based on U.S. markets and U.S. monetary and fiscal policies.

Asset allocation or diversification does not guarantee a profit or protect against loss in declining markets.

No investing strategy can overcome all market volatility or guarantee future results.

Market forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise. The municipal bond market may be impacted by unfavorable legislative or political developments and adverse changes in the financial conditions of state and municipal issuers or the federal government in case it provides financial support to the municipality. Certain sectors of the municipal bond market have special risks that can affect them more significantly than the market as a whole. Because many municipal instruments are issued to finance similar projects, conditions in these industries can significantly affect an investment. A portion of the income derived from a municipal bond may be subject to the alternative minimum tax. Any capital gains realized may be subject to taxation. Federal, state, and local taxes may apply. There is a risk that a bond issued as tax-exempt may be reclassified by the IRS as taxable, creating taxable rather than tax-exempt income. High-yield securities, sometimes called junk bonds, carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. Bonds may also be subject to other types of risk, such as call, credit, liquidity, interest-rate, and general market risks. Longer-term debt securities are usually more sensitive to interest-rate changes; the longer the maturity of a security, the greater the effect a change in interest rates is likely to have on its price. Lower-rated bonds may be subject to greater risk than higher-rated bonds. No investing strategy can overcome all market volatility or guarantee future results.

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