Q&A: Columbia Threadneedle’s Take on the Muni Bond Market – ETF Trends




ETF Trends caught up with Catherine Stienstra, Head of Municipal Bond Investments, Columbia Threadneedle Investments, to discuss the latest happenings in the muni sector.

What are your current views on the municipal bond market?

Since mid-March nearly 43 million workers, more than a quarter of the U.S. workforce[1], has filed for unemployment. As the scale of the economic damage caused by measures to prevent the spread of COVID-19 unfolds, it is clear that pricing of risk assets will likely be volatile for the foreseeable future.

With state and local governments requiring assistance, and several municipal sectors directly in the crosshairs of the COVID-19 economic fallout, municipal underperformance in March did not come as a surprise. Throughout the month of May, COVID-19 cases continued to trend lower and a greater number of states moved to ease lockdown restrictions. This helped bolster market sentiment across financial markets, and munis were no exception.

The Bloomberg Barclays Municipal Index returned 3.18% in May, significantly outperforming the +0.47% return in the Bloomberg Barclays U.S. Aggregate Bond Index. The Bloomberg Barclays High Yield Municipal Bond Index gained 4.08%.[2]

In terms of our outlook on the muni bond market, we believe opportunities exist in certain sectors that were impacted more by fears of COVID-19 and will be able to bounce back. BBB credit spreads remain wider than historical averages and have been slower to respond during this stabilization period. Barring a second wave of infections shutting down the economy and with improving economic data, there is value in pockets
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