2024 is shaping up to be a year of record issuance for the bond market in both the private and public sectors. In the case of the latter, record municipal bonds issuance is opening up opportunities for investors to get exposure ETFs that tailor their focus to munis.
2023’s market rally certainly played a role for federal, state, and local governments to issue more debt to fund 2024 projects. Whatever the reason, January added to more year-over-year gains for issuance.
“January issuance was up year-over-year as positive market momentum from [year-end], growing capital needs, tighter credit spreads and planning for dwindling federal stimulus dollars prompted issuers to come to market,” Bond Buyer confirmed.
Taking advantage of yields as they are now is another reason investors may want to take advantage of current debt offerings. For those who are looking for fixed income opportunities that also offer tax-free benefits, municipal bonds are ideal.
Additionally, the macroeconomic environment is conducive to munis after the Fed recently stood pat on interest rates again. For the past few years, the Fed has been trying to hikes rates enough to keep pace with inflation and eventually cut when economic growth starts to dissipate, but not to the point where it causes a recession. Given their relative safety compared to riskier bonds, municipal debt is an attractive option versus debt offerings.
Also, rate cuts may have already been priced into stocks. That makes them potentially overvalued relative to other assets like municipal bonds. With yields still relatively high, muni offerings at current prices give fixed income investors an opportunity to take advantage before yields move lower and consequently, bond prices move higher once the Fed starts cutting rates.
Active Exposure to Municipal Bonds
While the municipal bond market offers a vast array of opportunities in single debt holdings, an ETF like the ALPS Intermediate Municipal Bond ETF (MNBD) can offer easy ingress to this complex corner of the bond market. To help navigate the complexity, the ETF is actively managed, putting the fund in the hands of experienced portfolio managers who know how to deftly navigate the municipal bond market.
Per its fund description, MBND seeks to actively achieve its investment objective by applying bottom-up fundamental analysis and investing in a long-term, tax-aware manner. The fund aims to actively implement the strategy by investing primarily in a diversified portfolio of investment-grade municipal bonds. As of 12/31/23, the ETF’s 30-day SEC yield is 3.29%, with a 0.50% expense ratio.
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