Three Muni Market Drivers | Lord Abbett

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Fixed-Income Insights

Lord Abbett Partner and Director, Daniel Solender breaks down how demand, supply, and the infrastructure bill are shaping today’s municipal bond market.


Hello, my name is Dan Solender. I'm a partner at Lord Abbett and director of Tax Free Fixed Income.

Title: Three Muni Market Drivers

We’ve had a very good year in the municipal bond market so far this year. You know, things started out very strong, for the first seven months or so. Then slowed a little bit as rates went up a little bit with treasuries in September, and things are getting back to being positive right now. And one of the important things to reinforce about the time period when rates did rise and prices went down a little bit over September and October, is that it had nothing to do with problems in the municipal bond market. It was purely due the rates rising and treasuries. Credit quality is very strong in municipals. All the sectors that were moved to negative in 2020 when the pandemic started are now back to neutral or positive. Default rates are very low on the high yield side and a lot of the stimulus has been very helpful, along with the economy doing better than expected. So, overall credit quality is very strong in any negative movement in prices during the fall of that nothing to do with problems in the market.

So, focusing on a few of the important components of the market, first of all, demand. Demand is an important part of our market because 70% of our bonds are owned by individuals either and brokerage accounts or in managing products like mutual funds and separately managed accounts. And demand remains on a record pace with about 92 billion going to municipal bond mutual funds so far year to date.

The next part of it, the second component is supply. Supply was kind of, through the first seven, eight months of the year, was kind of average to below average, which was a positive technically to the market. It has picked up a little bit recently, but still the market has been handling and there are no signs of any over supply. So the market is in good shape in terms of supply and demand balance.

A final thing to mention that is important, recently, is the infrastructure bill. We were kind of worried a little bit as a market going in about what might happen. There were some concerns that components might increase supply or change tax rates. And so far none of that really seems to be coming out of it. Supply seems pretty stable. Rates seem like they're not going to change that much on taxes. And so, overall, the infrastructure bill could be a positive for some credit quality in the market with some money flowing in, but kind of neutral overall.

So to refresh, credit outlook very strong, things still doing very well overall. Demand, very strong, record pace. Supply, average picking up a little bit, but not too much. And infrastructure bill kind of neutral to our markets. Overall, the outlook seems pretty positive going forward for the municipal bond market.

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


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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