Morgan Stanley's Zezas Says the Muni Market Is More or Less a Rates Market

Taylor Riggs interviews Michael Jesus, chief municipal strategist at Morgan Stanley, discussing the impact of interest rates on municipal bonds. They explore the importance of yield curve steepness and duration strategy, emphasizing the need for downside protection in asset allocation. The conversation also covers sovereign risks and credit concerns, highlighting lessons from Puerto Rico and Illinois. Michael concludes with a cautious outlook on the muni market, advising an underweight position in certain sectors.

What is the primary concern for the municipal market according to Michael Jesus?

• Political instability

• Credit defaults

• Interest rates

• Inflation

Why does Michael Jesus emphasize the importance of long-duration bonds in the municipal market?

• They offer high short-term returns

• They provide downside protection and income

• They are less affected by interest rate changes

• They are easier to trade

What historical resilience do munis show according to Michael?

• They outperform stocks in bull markets

• They remain stable during severe bear steepening

• They always provide high returns

• They are unaffected by economic cycles

What is the concept of sovereign risk in the municipal market?

• The risk of political changes in foreign countries

• The risk of international trade affecting bonds

• The risk of a state issuer ignoring bond agreements

• The risk of inflation impacting bond value

How does Michael suggest managing credit risks in the municipal market?

• By focusing on single-name stories

• By following market headlines closely

• By investing in high-yield bonds

• By underweighting certain sectors