Municipal bond investors are benefitting from a post-election surge in yields that presents a rare opportunity to capture excess yield and total return. Since the election, yields on 10-year AAA-rated muni bonds have risen 150% more than have yields on US treasuries during the same time. The rise in muni yields has also outpaced that of many types of corporate bonds over that stretch. To put this in perspective, munis have reached relative yield levels similar to these only three other times during the past ten years.
Standish believes that this is a technically driven dislocation, a combination of record new issue supply and redemptions from open end mutual funds and municipal ETFs. Muni bond fundamentals remain strong and rates have risen along with treasuries. Meanwhile, despite those stable fundamentals, spreads for revenue bonds have widened to levels we have not seen in two years.
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