In this panel discussion on traditional assets, panelists dive into the complexities of the municipal bond market, highlighting the diverse nature of the more than 50,000 issuers – each characterized by its distinct credit profile. They note that credit conditions have seen recent improvements, attributed to factors such as post-2008 financial crisis economic recovery and substantial federal support amid the COVID-19 pandemic. However, they mention that it’s crucial to acknowledge the considerable variability in credit quality across issuers, with some boasting strong financial positions, while others grapple with high debt burdens or pension liabilities. Investors are advised to diligently assess credit risk by examining revenue sources, debt levels and financial management practices, with diversification serving as a risk mitigation strategy.
The discussion reveals that current credit conditions in the municipal bond market are favorable and buoyed by government stimulus initiatives and infrastructure spending. Concerns are raised about budget challenges in major cities and labor inflation in healthcare and senior living sectors, and opportunities are identified, especially in affordable housing projects, as banks reduce their exposure. Active management is emphasized as vital due to the market’s complexity, with the potential for alpha generation. Additionally, the panel briefly touches upon the Federal Reserve’s interest rate decisions, acknowledging their significance and the possibility of further rate hikes impacting inflation, the yield curve and the broader economy.