The tone of the municipal market did a 180-degree turn in the third quarter, as yield and spread volatility trended lower and seasonal demand, once again, provided firm support. The ongoing and pressing economic concerns related to the Covid-19 shutdown remain ever present; however, investors’ desire for income generation seemingly outweighs any potential credit concerns. During these volatile and uncertain times, Sage remains focused on maximum risk-adjusted income, stable principle valuations, and a high degree of liquidity. Current market conditions warrant patience and prudence when deploying funds as valuations are not broadly reflective of the ongoing fiscal challenges.

Market conditions warrant patience and prudence when deploying funds as valuations are not broadly reflective of the ongoing fiscal challenges. Sage’s long-duration tilt has gradually been reduced and will be rebalanced when swap opportunities become available. Sage maintains a bullet tilt to our curve structure, due to the steep yield curve and the Fed’s ongoing support of front-end yields. Strong seasonal influences and modest new issue supply will provide a supportive backdrop to current yield and spread levels. With a higher probability of industry-wide downgrades over the coming year, sector allocation and rebalancing will remain focused on stable-to-improving sectors, including both general obligation and essential service revenue bonds rated A2 and higher. During these volatile and uncertain times, Sage remains focused on principal preservation, improving liquidity, and stable tax-free income generation.

For those keeping score, Sage has once again successfully navigated these challenging times for our clients. The positive outcome is a testament to our investment process that remains consistent, regardless of market limitations or influences. A core tenant that has saved our clients from irreparable principal loss despite market dislocations has been Sage’s approach to optimizing fundamental credit strength along with current market valuations.

With a higher probability of industry-wide downgrades over the coming year, sector allocation and rebalancing will remain focused on stable-to-improving sectors, including both general obligation and essential service revenue bonds rated A2 and higher. During these volatile and uncertain times, Sage remains focused on principal preservation, improving liquidity, and stable tax-free income generation.