Yields and fixed-income prices have an inverse relationship, so falling yields correspond to rising prices. Additionally, bond yields and cash look more attractive in a low inflation environment.
Additionally, Janney projects that muni-to-Treasury yields to trend lower next year – a falling ratio reflect an outperforming munis market, due to improved confidence in municipal creditworthiness and default fears abate.
“Once again, tax-exempts represent our strongest conviction overweight call for 2015, an outgrowth of the value of tax-exempt income at a time when upper bracket tax rates are at their highest levels since 1986,” Janney Montgomery Scott said in the article. [Muni Bond ETFs Still Have Tailwinds]
Investors interested in high-yield debt exposure can take a look at broad junk bond ETFs like the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEArca: HYG) and the SPDR Barclays High Yield Bond ETF (NYSEArca: JNK).
HYG has a 4.16 year duration, a 5.12% 30-day SEC yield and a 0.50% expense ratio. JNK has a 4.35 year duration, a 5.68% 30-day SEC yield and a 0.40% expense ratio.
Janney expects credit fundamentals to remain sold through 2015.
For more information on the munis market, visit our municipal bonds category.
Max Chen contributed to this article.