Taxable US municipal bonds – the sweet spot between Treasuries and Corporate Bonds | Insight Investment

We believe taxable US municipal bonds offer considerable advantages for fixed income investors relative to both US Treasuries and corporate credit.

In our view, US municipal bonds remain an underappreciated asset class for many non-US investors. We believe the asset class offers considerable advantages for fixed income investors relative to both US Treasuries and corporate credit. Taxable munis, a category of US municipal bonds appropriate for investors outside the US, offer:

1. a meaningful yield pick-up relative to Treasuries, with yields comparable to US corporates

2. credit quality that is on an improving trend, supported by high cash reserves and growing tax revenues, while the credit quality of the US government is deteriorating

3. backing from issuers with mandated budget discipline in many cases

4. an attractive technical outlook, stemming from potentially higher inflows and lower issuance

5. lower spread volatility than corporate investment grade credit; and 

6. lower historical defaults and better recoveries than global corporate debt of similar credit rating

Figure : Taxable munis can offer higher yields than benchmark US Treasuries

Source: Source: Bloomberg, 30 September 2024. Indices used Bloomberg Barclays Municipal Index Taxable Bonds Yield To Worst, LUACOAS Index for US Corporate IG