Munis could be a beneficiary of Fed's dovishness, says First Eagle's John Miller

Market Dynamics - Municipal bonds (munis) have underperformed year-to-date due to significant new issue supply and tepid demand, with investors holding cash or cash equivalents [2] - A potential rate cut in September could drive more investment into the muni asset class [2] - US banks have cut back on municipal bond exposure to the lowest since the financial crisis [2] - Individual investors, particularly in higher tax brackets, are key to municipal bond demand but have been restrained by financial market volatility and inflation uncertainty [3] Yield and Returns - High-quality, longer-term municipal bonds can yield 5% or higher on a tax-free basis, equivalent to around 7-75% taxable [4] - Higher-yielding municipal bonds offer 6-7%, equivalent to over 10% taxable [5] - The issuance side is long on the yield curve, offering more yield for each incremental year, which bodes well for returns in the second half of the year [4] Federal Reserve (FED) Impact - The Federal Reserve's dovish tilt, acknowledging tariff implications and potential labor market weakness, could benefit municipal bonds [7] - Municipal bonds could be a major beneficiary of the dovish tilt, as they have lagged behind equities, corporates, and treasury indices [8]