David Hammer, Portfolio Manager at PIMCO, joined Keith Black, Managing Director of RIA Channel, to discuss the municipal bond market.
Over the last year, municipal bonds have offered the highest yields since 2007, with investment-grade yields offering a significant pickup over Treasuries and corporate bonds on a tax-equivalent yield basis.
Municipal bonds have been improving in credit quality. State and local government tax collections have increased by 25% to 30% since COVID, supported by fiscal stimulus and direct support from the Federal government. Hammer notes that munis will likely be more resilient than corporate credit in a hard-landing scenario.
PIMCO offers separate accounts, active ETFs, open-end and closed-end funds. PIMCO manages active ETFs with the same investment process and best ideas as other funds. PIMCO offers three municipal bond ETFs: Short Term Municipal Bond Active Exchange-Traded Fund (SMMU), Intermediate Municipal Bond Active Exchange-Traded Fund (MUNI), and Municipal Income Opportunities Active Exchange-Traded Fund (MINO).
With 50,000 different issuers and 1 million CUSIPs, it is difficult to index municipal bonds. Active management in munis can overweight issues that appear favorable from PIMCO’s fundamental credit analysis process. The muni curve is U-shaped and steep from 10-year to 30-year maturities. Investors allocating to a barbell strategy can earn higher yields at both the short and long end of the yield curve.
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