Buyers may be emboldened by the experience during the pandemic, when defaults remained rare even as the economic shutdowns threatened many industries that have raised money in the municipal market. Only a little over $3 billion of bonds defaulted in 2020 and 2021, a small share of the $3.9 trillion market, according to data compiled by Bloomberg Intelligence.
“Through Covid and into today, market defaults continue to be exceedingly, exceedingly low,” said Ben Barber, head of municipal investing at Franklin Templeton. “A lot of sectors that caused great concern have survived in pretty remarkable fashion.”
‘Full-blown Return’
After a steep downturn when the pandemic first hit in 2020, high-yield municipal bonds have rallied strongly back, delivering a return of 5.8% so far this year. That’s over 4 percentage points more than the broader market, the biggest gap in returns since 2014, according to Bloomberg Barclays indexes.
Nuveen’s Anders Persson and John Miller highlighted the demand for high-yield municipals in a note this week, saying that some offerings have been as much as 30 times oversubscribed.
There seems to be little sign that demand is slowing. High-yield funds have absorbed a fourth of the $44.7 billion of inflows into muni funds this year, according to Refinitiv Lipper US Fund Flows data.
“We are on the precipice of going into full-blown return to normal and the commensurate economic boost as a result of that,” Nuveen’s Miller said in an interview this month.
“There is a lot of cash coming in and not that many bonds,” he said. “In that environment, I think spreads are going to keep tightening, bottom line.”
Goldman’s deadline was reported earlier Thursday by the New York Times.
This article was provided by Bloomberg News.