Municipal bonds

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Our municipal bond strategies seek to deliver a relatively high level of income and excess total return from actively managing portfolios of tax-exempt and taxable municipal bonds.

High quality debt

Municipal bonds are issued by state and local governments and nonprofit entities to fund public infrastructure initiatives, such as water systems, power utilities and mass transit. Debt service is usually funded from taxes or revenues generated from infrastructure projects, providing a reliable source of income.

The strong credit quality of state and local government issuers means that municipal bonds have experienced significantly lower default rates1 and higher recovery rates than global corporate bonds2. From 1970 to 2019, investment-grade municipal bonds experienced a cumulative default of 0.1% compared to global corporate bonds at 2.25%.

Attractive yields

Taxable municipal bonds, a smaller but rapidly growing sub-set of the overall municipal bond market, provide income and yields which are often greater than similarly rated corporate bonds in the US and globally. This is particularly attractive to non-US investors. Given inefficiencies in market pricing, this at times also opens up potential relative value opportunities across markets.

Tax-exempt municipal bonds can be an attractive tax-efficient investment vehicle for US individual and corporate investors as the coupon interest income paid by these bonds is exempt from federal, and in many cases, state income taxes. While non-US investors would not benefit from the tax relief, these bonds can offer diversification benefits.

Municipal bonds can be classified as either General Obligation (GO) or Revenue bonds. GO bonds’ debt service repayment is supported by a municipality’s full faith and creditworthiness including the ability to levy taxes. Revenue bonds' debt service can be backed by income streams from specific projects, such as toll roads, water and sewer systems, electric utilities, etc.  

We prefer Revenue bonds due to their essential service nature, monopolistic service areas, strong credit fundamentals and attractive yields. However, we invest in select GO bonds if they are fundamentally sound, possess strong liquidity characteristics and the issuer is devoid of pension obligation challenges.

Diversification benefits

Tax-exempt and taxable municipal bonds have demonstrated a lower correlation to a variety of US and global bond sectors and a negative correlation to equities.3

Exploiting high quality opportunities in an inefficient market through active management

The municipal bond market is highly fragmented with thousands of state and local government issuers. This issuer fragmentation, combined with a buyer base dominated by retail investors, may cause swings in pricing during periods of volatility. Our disciplined active management style, combined with a strong culture of risk management, takes advantage of these periods of volatility and seeks to provide our clients with attractive levels of income and excess total return.

Our team

The senior members of Insight’s municipal investment team have over 25 years’ experience, on average, and have, worked together for close to two decades. In addition, the trading team each have over 20 years’ of experience in trading municipal bonds. This combined experience helps the team to understand the market, recognise risks and opportunities, and trade effectively in this inefficient market.

Our strategies

  • US Municipal Infrastructure: this strategy seeks to capture excess yield through investing predominantly in taxable and tax-exempt municipal bonds issued to finance infrastructure sectors and projects in the US. With an emphasis on revenue infrastructure municipal bonds, investors participate in the rebuilding of America's roads, bridges and other vital projects. Click here for a copy of the factsheet.

  • Municipal High Yield: this strategy is designed to provide investors with a higher-yielding allocation to the municipal sector. The strategy invests predominantly in US municipal bonds and its primary objective is to provide high current income exempt from US federal income tax. To the extent consistent with its primary objective, the strategy also seeks capital appreciation as a secondary goal.

  • Total Return US Municipal Bond: this strategy intends to provide investors with tax-exempt income via portfolio exposure to high-quality municipal bonds. The strategy focuses on adding value by identifying undervalued sectors and securities in longer-maturity municipals to exploit yields and price returns through strategic duration positioning.

Fixed income team in numbers

  • 168 Fixed income investment professionals globally
  • 19years Average experience of fixed income team
  • £224.0bn fixed income assets

As at 31 March 2022. Assets under management (AUM) are represented by the value of cash securities and other economic exposure managed for clients.


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1Source: Moody's Investors Service cumulative default rates by rating category, 1970 – 2019.
2Source: Moody’s Investors Service as of July 15, 2020. Average Corporate Debt Recovery Rates for senior unsecured bonds 1987-2016.
3Source: Barclays, Merrill Lynch, Bloomberg as of December 31, 2020.

Important information

The value of investments and any income from them will fluctuate and is not guaranteed (this may be partly due to exchange rate fluctuations). Investors may not get back the full amount invested. Past performance is not a guide to future performance.

The issuer of a debt security may not pay income or repay capital to the bondholder when due.

Investments in bonds are affected by interest rates and inflation. For a full list of applicable risks, and before investing, investors should refer to the Prospectus or other offering documents.

Derivatives may be used to generate returns as well as to reduce costs and/or the overall risk of the portfolio. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment.

The investment manager may invest in instruments which can be difficult to sell when markets are stressed.