Municipal Fixed Income Investment Strategy — July 2023

July 11, 2023 — Municipal Fixed Income Investment Strategy provides an overview of Sage’s market outlook and sector positioning.

Market Outlook

• The municipal credit environment continues to improve and currently exhibits multiple fundamental metrics that have not been this strong in over two decades. Post-Covid challenges related to inflationary pressure have permanently increased the cost of labor, goods, and services that will increase pressure on budgets over time. In addition, long-term challenges such as underfunded pension and OPEB funds will likely result in credit downgrades for those issues that continue to neglect those obligations.
• Looking forward to the second half of the year, municipal returns are anticipated to be positive, despite some initial yield volatility, delivering 1.5% to 2.0% returns on income alone. Higher-beta credits will continue to outperform as the additional spread will improve both income and provide further price appreciation. With the Fed tightening cycle concluding soon, Sage will continue to add duration in longer-dated maturities since valuations are compelling in that area.