- Heading into 2015, we expect relatively favorable technical conditions to persist, although issuance related to the pressing need for investment in U.S. infrastructure could overwhelm the consistent demand for U.S. municipals, driving volatility and spreads wider. A rush to market in anticipation of changing Fed Policy and rising rates could also tip the fragile supply/demand balance.
- The fundamental outlook for state and local municipalities is stable to improving, driven largely by the improvement of the U.S. economy. Medicaid expense and growing pension liabilities remain a concern for some highly leveraged issuers, and we expect continued funding pressures and budgetary challenges. Puerto Rico and Detroit are unique crises; we continue to track legal and negotiated resolutions for insolvent issuers to understand precedent for pensioners and different classes of bondholders.
- Public investment in infrastructure, health care reform, banking regulation, declining oil prices and socially aware investing are trends that could impact prices of U.S. municipals and other global fixed income asset classes.
- Munis offer total return potential for active managers who can exploit periods when favorable liquidity conditions give way to periodic bouts of heightened volatility, an environment which is likely in 2015. A stable of high grade, liquid bonds can serve as a funding source to capitalize on future buying opportunities.
- Standish views municipal bonds as attractive investments for both U.S. and non-U.S. investors. Attractive income, high quality and historically low relative volatility and correlation make U.S. municipals an opportunity for diversification with relatively generous carry.
Download PDF for full article