US Munis the Sweetspot between Treasuries and Corporates | Insight Investment

Why US taxable munis provide a compelling blend of income, credit quality, and defensive strength?

In our view, US taxable municipal bonds remain an underappreciated asset class for many non-US investors. We believe the asset class offers considerable advantages for fixed income investors relative to both US Treasuries and corporate credit, offering:

1. greater income potential than US Treasuries;
   
   
2. possibilities for active managers to exploit steeper yield curves;
   
   
3. credit quality that is on an improving trend, supported by high cash reserves and growing tax revenues, while the credit quality of the US government is deteriorating;
   
   
4. backing from issuers with mandated budget discipline in many cases;
   
   
5. an attractive technical outlook, stemming from potentially higher inflows and lower issuance;
   
   
6. lower historical defaults and better recoveries than similarly rated global corporate debt.