Another rate hike later this year could further hinder municipal bonds’ performance.
“The current weakness, however, could extend for a while if interest rates resume their rise and market supply and demand factors become more negative,” notes CNBC.
While tax cuts are making other asset classes more attractive than munis, the municipal bond market still boasts some solid fundamentals.
“The fundamentals underlying muni credit profiles are also improving thanks to the strong economy. Personal income tax revenues and property taxes are up 5 percent and 6.5 percent in the last year, according to Hession. Muni defaults have totaled less than $2 billion so far this year, with virtually all of that related to FirstEnergy Solutions, a power generating business of the Ohio-based utility that declared bankruptcy earlier this year,” according to CNBC.
For more information on the munis market, visit our municipal bonds category.