Municipal bonds tend to be a favored investment for those who are looking for a safe investment option. The funds are also tax-free, which is another positive for them. 

Not everyone is ready to jump back into the municipal bond pool just yet. Andy Kapyrin, co-chief investment officer at Regent Atlantic, said that they are actively steering clients away from municipal offerings for the time being.

“I think municipal bonds are a good investment,” he said. “They are just a little rich right now.”

He pointed out that traditionally the offerings are geared more for clients of the highest tax bracket, which means that they have to make sense from a tax standpoint for them to be a viable investment for clients. To start recommending the offerings to clients again, Kapyrin said he would need to see the after-tax spread between tax-exempt offerings and corporate bonds begin to narrow.

Stienstra and Carney, meanwhile said that signs are appearing that demonstrate that the market has not lost faith in the offerings. Stienstra said that they are starting to see more cross-over buyers in the market. 

For the rest of the year, we feel very good about the fundamentals of our market," she says. "Even sectors that were underforming during the pandemic are starting to recover."

Traditional municipal bond investors tend to be the retail investors. However, Columbia Threadneedle has seen an increase in investments from non-retail investors such as banks, insurers, taxable mutual funds, and even hedge funds. In the past, the sign that these non-traditional investors were putting their money into municipal funds was an indication that they were leading the way for the traditional investors to return. 

“Valuation [concerns] are overdone and municipal bonds offer a great [opportunity for investors],” Stienstra said. “Because of the dramatic selloffs, we expect many of the traditional investors to return.”

Kapyrin said that he sees a different perspective on the offerings. He believes that the tax benefits of municipal offerings are not as attractive as they once were.

He attributes the decline in attractiveness with the offerings to the Tax Cuts and Jobs Act of 2017 signed by former President Donald Trump. Among the many taxes the law reduced was the corporate tax rate. When that occurred, the reduced tax rate for corporations made the municipal offerings less attractive on a relative basis than investment funds sporting higher yields.