Embrace Change

“Change is the law of life. And those who look only to the past or present are certain to miss the future.”

─John F. Kennedy

The past two years’ events are undoubtedly altering the future direction of our lives: where we live, how we work, learn and communicate and how to prudently invest in municipal bonds. In many respects, pre-existing trends are accelerating. In higher education for example, acceptance of virtual instruction has vaulted forward and is shifting our relative value assessments. Passive buy and hold municipal strategies such as ladder portfolios and most separately managed accounts (SMAs) may have worked historically but now lack the flexibility to generate excess return in the evolving municipal market.

We note these dramatic structural shifts in the market: taxable issuance likely exceeds $100 billion for the third year in a row, 5% plus coupon structures have declined from 63.2% issuance in 2017 to 34.6% today,1 and the Non-Rated percentage of the Bloomberg High Yield Municipal Index now exceeds 61% – up from 40.9% in 2017.2 This year’s five insights focus on the stark shifts occurring in the municipal bond market and provide our roadmap for embracing and capitalizing on the changes that lay ahead.

Top Five MacKay Municipal Managers’ Market Insights for 2022: “Embrace Change”