Viewpoints
2020 Mid-Year Outlook: Municipal Bonds

Timely insights from portfolio managers and industry experts on key financial, economic and political issues.

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      By Craig R. Brandon, CFACo-Director of Municipal Investments, Eaton Vance Management

      Boston - Cautiously optimistic about the municipal bond market heading into the fall.

      Hi, this is my mid-year 2020 update for the municipal bond market. I think we're cautiously optimistic heading into the fall and into 2021 for the municipal bond market.

      We saw quite a lot of volatility in the first quarter of 2020. However, what we've seen is a very sharp V-shaped recovery for AAA and AA bonds so far this year. We haven't seen quite the recovery from what we would call high yield, being BBB and below. Although they have recovered in value, they continue to lag AAA and AA bonds into here.

      That makes sense because we're waiting to see what actual operating results look like — for not only states and localities, but we want to see what actual operating results look like for colleges and universities and for some hospitals and other sectors in our market. So as we start analyzing those actual numbers, then it will give us a little more clarity on where the BBB and below sector should be.

      I think we're entering this time period with the wind at our back. I would say technicals are very strong in munis after seeing flows out of the market earlier in the year. We continue to see strong flows back into the market, both in the high quality and in the high yield space. Munis are definitely driven by technicals, so it's very comforting to see money coming back into the market — in addition to very strong coupon reinvestment money that we're seeing right now.

      So I would say that our outlook for munis is cautiously optimistic through the rest of the year, pending some of the actual results that we see from some of the borrowers in the municipal market.