Why Advisors Are Doubling Down on Munis, High-Quality Bonds Right Now

Core Insights - The article emphasizes the opportunities in fixed income investments outside the US, driven by diverging global monetary policies and attractive starting yields in the US, Europe, and Japan [1] Fixed Income Market Trends - BlackRock's Fixed Income Outlook highlights that fixed-income flows are strong, with global ETF flows reaching approximately $65 billion in February, surpassing the 12-month rolling average of $56 billion [1] - The US economic outlook remains robust, bolstered by anticipated capital spending and consumer buying, although rising energy prices due to geopolitical tensions pose risks [3] - Financial advisors are encouraged to build higher-quality portfolios using fixed-income investments, as starting yields in many sectors are favorable [4] Investment Strategies - There is a significant amount of $7.8 trillion in money-market funds, suggesting opportunities for advisors to move clients into longer-duration fixed income, which is expected to outperform cash in the long term [6] - BlackRock notes that the Bloomberg US Aggregate Index's return of 7.3% in 2025 outperformed cash returns of 4.3%, marking a significant shift in fixed income performance [7] - Investment-grade credit spreads are currently viewed as unattractive, leading some investors to prefer shorter-dated US Treasurys until spreads widen [8] Municipal Bonds - Municipal bonds, particularly those dated beyond 10 years, are showing strong returns, with absolute returns around 2%, outperforming taxable investment-grade bonds [9] - Advisors are advised to take advantage of a steepening yield curve in municipal bonds to lock in yields [10] International Fixed Income Opportunities - Both BlackRock and Vanguard identify dispersion in fixed income as a positive theme for active managers, suggesting a "bond-picker's market" for international investments [11] - Vanguard anticipates a flattening of Japan's yield curve due to increased debt issuance, while Europe's curve may steepen, presenting relative value opportunities [12] - Structured notes tied to international index-based ETFs are being utilized as a less risky method to gain exposure to international fixed income [13]