Municipal Bonds: More Appeal Than Meets the Eye

Core Viewpoint - Municipal bonds have shown limited performance this year, contrasting with the overall positive trend in aggregate bond indexes, suggesting a potential opportunity for investors to revisit this market segment [1][2]. Group 1: Market Performance - The ICE AMT-Free US National Municipal Index indicates that municipal bonds have not performed significantly this year, despite other bond indexes trading higher [1]. - The ALPS Intermediate Municipal Bond ETF (MNBD) is highlighted as a potential investment opportunity, particularly due to its active management approach, which allows for quicker responses to market changes [2][3]. Group 2: Investment Opportunities - There are several tailwinds that could enhance the performance of MNBD, including the potential for multiple interest rate cuts by the Federal Reserve and an anticipated increase in demand for municipal debt [4]. - Goldman Sachs Asset Management (GSAM) anticipates increased demand for municipal bond investment vehicles as investors look to reinvest new capital and take advantage of cheaper valuations in the market [5]. Group 3: Market Fundamentals - Despite challenges such as a significant increase in new issuances not being met with strong demand, the fundamentals of municipal bonds remain attractive, with resilient credit quality and historically high rainy day fund balances [6][7]. - GSAM notes that the foundational elements of the municipal bond market are favorable, with compelling yields and robust credit fundamentals, suggesting a positive outlook for the second half of the year [8].