Barclays Plc says the municipal market is due to rebound from a record decline in the first quarter and it’s a good time to start buying.
“At current levels, a lot of bad news has already been priced in, and muni valuations are cheap enough to outperform Treasuries for the remainder of the year,” strategists Mikhail Foux, Clare Pickering and Mayur Patel said in a note on Monday. “In our view, current levels present a good entry point to start slowly adding muni exposure.”
State and local debt, which tends to follow the performance of U.S. Treasury securities, has been hit hard by a broader selloff spurred by the Federal Reserve tightening monetary policy to combat inflation. Municipal bonds has posted a 7% loss so far this year, according to Bloomberg indexes, in a rare pullback for an asset class typically known for its stability.
The yield on the 10-year AAA benchmark reached about 2.38% on Friday, compared to a little over 1% at the start of 2022. Municipal-bond mutual funds -- a core buyer in the market -- have seen outflows of about $30 billion, the fourth-worst period on record, according to Barclays.
The bank’s municipal strategists noted the view of the bank’s U.S. rates strategists, who said in a note last week that the “catalysts for higher rates are largely behind us.” If interest rates stabilize, then outflows from mutual funds will likely subside, they said.
“We are becoming a bit more sanguine on the market for the remainder of the year and expect 2Q22 returns to be positive,” they said.
This article was provided by Bloomberg News.