Refocus on income: The asset class is offering significantly more income now than it was three months ago for the same level of risk. Holding cash and low duration fixed income doesn’t pay.
Observe the curve: The municipal yield curve is steep (steeper by 140 bps year-to-date between 2- and 30-year maturities.) This means investors are getting paid for extending maturities.
Look beyond headlines: Headline noise (especially around Detroit and Puerto Rico) continues and has added to underperformance. It’s also added to the value proposition. If you believe in the underlying strength of the broader asset class, as I do, then there’s much more opportunity than risk.
Take advantage of professional management: Especially if you’re worried about credit events, a diversified portfolio of investments may offer more protection than owning single bonds. Professional managers also have the ability to source bonds at a time when supply is low and good deals are hard to find.
Peter Hayes, Managing Director, is head of BlackRock’s Municipal Bonds Group.