Amidst continued heightened market volatility, John Loffredo and Robert Burke, CFA, from MacKay Municipal Managers provide a market update on municipal bonds. Listen to the audio replay.

As the municipal market is observing retail selling pressure, evolving dealer inventory, and uncertainty in general, we’ve seen a sharp reversal in municipal market performance not experienced in decades. While our strategies enter this cycle with what we believe is the right posture (more defensive while active, “quality up”, and disciplined liquidity management), spreads in both the investment grade and high yield municipal markets have continued to widen significantly. As this progresses, we also want to remind our clients that the following remains unchanged at MacKay Municipal Managers:

Setting the Stage

While markets are fluid and we believe active management is paramount, MacKay Municipal Managers’ thesis remains consistent with our 2020 Top Five Insights published in January. Coming into 2020, on the heels of very strong municipal market performance, our team took the opportunity to “quality up” while maintaining disciplined underwriting standards and ample liquidity.

Pulse of the Market

With heightened volatility and increased selling pressures, our team discussed multiple factors, including liquidity management, which is always critical in our view, particularly in the current market.

Credit Update

Consistent with our 2020 Insights published in January, we believe strategic underweight exposures are more important than stretching for “winners.” The case for full time professional credit research has never been more important in our view.

Update on the Taxable Market

This growing, yet underutilized asset class has been gaining traction in recent years, especially among institutional investors. MacKay Municipal Managers reviewed the dynamics of this space and how one might consider this in the current market.