According to Patrick Haskell, head of the municipal bond group at BlackRock, municipal bond issuance is projected to surpass $580 billion this year, with new cash flows into these bonds reaching $56.6 billion in the first half, marking the second-best start to any year.
Haskell emphasizes the importance of patience in the second half of the year, advising investors to focus on the right credits, structures, and levels. Municipal bonds are particularly appealing to high-income investors due to their tax-free income, which is more beneficial for those in higher tax brackets.
For instance, an investor in the 32% federal tax bracket would need a 5.45% yield from a taxable bond to match the income from a 3.5% tax-free muni bond. Haskell's team favors longer-dated bonds in the 20- to 22-year range, despite their sensitivity to interest rate fluctuations, and recommends high-quality bonds with coupons above 5% to navigate market uncertainty.
Specific sectors of interest include revenue bonds in housing and transportation, with the S&P Municipal Bond Housing Index yielding 4.34% (tax-equivalent yield of 7.33%) and the Transportation Index yielding 4.06% (tax-equivalent yield of 6.86%). Additionally, select corporate-backed municipal bonds are highlighted, with a yield-to-worst of 4.39% (tax-exempt yield of 7.42%).
Haskell concludes that the overall outlook for municipal bonds remains positive