Highlights

  • Investment grade municipal bonds endured their worst calendar quarter returns since 1981, thanks in part to hawkish monetary policy expectations resulting from the Fed’s March interest rate hike, with foreshadowing of more to come.
  • Nonetheless, the team sees municipal valuations as attractive and combined with supportive credit fundamentals, potential return prospects going forward may be improved.
  • On the sector front, public power remains strong due to demand recovery from the pandemic-related dip with expected continued growth. Analysts will look out for power reliability as utilities contend with extreme weather events and transition to renewable resources – the latter could lead to increased capital spending.
  • Economic growth projections for the state government sector were revised downwards (Real GDP for the next 4 quarters of 2.5% down from 3.4%) as oil, Ukraine, and inflation suppress consumer sentiment. The team expects sharply slowing growth for the sector this fiscal year after the strong recovery since Covid’s onset.
Municipal Securities Risk: Municipal markets may be volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issuers of municipal securities. The views and opinions expressed may change based on market and other conditions.

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