Municipal Bond Market Insight: Can the Rally Continue in 2023?
- Relative outperformance: Municipals fared relatively better than other high quality, fixed income alternatives in 2022, outperforming both Treasurys and corporate bonds.
- Yield is back: Municipal index yields rose by more than 240 basis points during 2022. While it was painful for bondholders to endure, the rate rise leaves the market with greater income producing potential and downside protection potential at current valuations.
- Late cycle observations: The municipal market appears to be in a stronger position than it has been in previous late cycle periods. Credit fundamentals appear sound across most sectors, nominal yields have been higher, and liquidity conditions appear stable.
- Airports sector: Moderately improving US domestic leisure travel has climbed to above pre-pandemic levels, yet room remains for continued recovery of business and international travel. The team’s overall forecast for the sector is “moderately improving.”