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2025 municipal market outlook
Municipal yields are set to end the year higher than where they started, and we believe muni bonds continue to be a compelling asset class that can offer investors attractive taxable-equivalent yield. We are bullish on municipal fixed income given attractive current yields and solid credit fundamentals. We believe municipal bonds have upside potential in well-diversified, long-term portfolios for investors looking past broader economic trends and focusing on strong fundamentals.
Key takeaways on municipal activity
- The U.S. Federal Reserve has reduced inflation, but now the market is focused on fiscal policy. Keep an eye on taxes.
- Municipal bond yields and spreads are compelling, which should garner demand across investment grade and high yield municipal bonds.
- Supply is expected to remain elevated, driven mainly by issuers’ pent-up demand for infrastructure projects amid acceptance of a higher-for-longer rate environment.
- Demand continues to favor owning duration. Investors do not want to miss out.
- Muni credit is strong but requires discerning credit research. Republican control in Washington is not expected to materially shift municipal credit trends.
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