High-Yield Munis Outperform as Credit Spreads Narrow

Chris Grantee, head of municipal trading, discusses why the Muni yield curve may not invert like the Treasury yield curve, citing historical trends and credit components. He highlights opportunities in the credit market, suggesting risk management strategies. Concerns about a liquidity crisis in the muni market are raised due to reduced dealer liquidity and increased buy-side participation. The discussion also covers the advantages of the taxable market over the tax-exempt market due to increased supply. Finally, Chris explains his preference for revenue bonds over general obligation bonds, citing cash flow visibility and pension obligation issues.

Why is the municipal yield curve unlikely to invert even if the Treasury yield curve does?

• Because municipal bonds have a different credit component

• Because municipal bonds have higher interest rates

• Because municipal bonds are riskier

• Because municipal bonds are not affected by market trends

What is a recommended strategy when credit spreads are narrow?

• Invest in high-risk assets

• Increase risk exposure

• Maintain current investments

• Pare back risk

What is a potential risk if portfolio managers become net sellers in the municipal market?

• Increased liquidity

• Higher interest rates

• Market stability

• Market gaps wider on credit concerns

What has been the trend in the supply of the taxable market year to date?

• Decreased by 20%

• Decreased by 40%

• Increased by 40%

• Remained stable

Why might investors prefer revenue bonds over general obligation bonds?

• Better cash flow visibility and fewer pension obligations

• More government backing

• Higher interest rates

• Lower risk