Here we are in Q4 of 2022, racing toward the end of one of the most difficult years – in recent history – for fixed income investors. We are not alone in expressing this view. But, we are also aware that while it might be the “darkest before the dawn” scenario, we need not rely on old saws to create a reality check for evaluating opportunities. Dawn will likely come before we realize it, so let’s look at 4 reality checks regarding the municipal market to ease possible investor concerns.
Reality #1
As with all fixed income, municipal bonds are influenced by interest rate decisions and guidance by the Federal Reserve (the Fed). As the Fed moves to combat inflation, interest rates rise, and the municipal market follows.
Reality #2
Yes, valuations have sunk, but if you do not sell, you do not experience a loss. The lower value is linked to the increase in rates (interest rate risk) and not a general decline in credit quality (credit risk) in the Municipal market, so there is likely no urgency to sell blindly.
Reality #3
Yields, the marker for returns in fixed income, are now higher for Municipals than at any time in the past 15 years. The performance opportunity can be meaningful.
Reality #4
Since 1965, a down year in the municipal market has been followed by at least one year (or several) of positive returns1.
As the Fed’s behavior adds volatility to the municipal market, we believe the long-term prospects remain steady. The eventual return of municipal market performance is likely indisputable; the only question is when. While we await dawn, the realities above keep us warm.
VanEck offers eight municipal bond strategies for a wide variety of investors.
| VanEck CEF Muni Income ETF | XMPT | $19.94 | -30.03% | 5.86% | $131 |
| VanEck High Yield Muni ETF | HYD | $48.99 | -19.26% | 4.91% | $2600 |
| VanEck Long Muni ETF | MLN | $16.35 | -23.15% | 4.33% | $206 |
| VanEck Short High Yield Muni ETF | SHYD | $21.66 | -11.82% | 4.21% | $405 |
| VanEck HIP Sustainable Muni ETF | SMI | $43.34 | -12.64% | 3.58% | $17 |
| VanEck Intermediate Muni ETF | ITM | $43.55 | -14.01% | 3.52% | $1600 |
| VanEck Short Muni ETF | SMB | $16.60 | -6.21% | 3.05% | $333 |
| VanEck Muni Allocation ETF | MAAX | $19.99 | -17.91% | 2.82% | $3 |
Source: VanEck. As of 10/28/22. The performance data quoted represents past performance. Past performance is not a guarantee of future results. Please click here for standardized performance current to the most recent quarter ended.
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Originally published by VanEck on 3 November 2022.
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